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Carvana stock rallies nearly 700% in 2023 amid CVNA short squeeze

Carvana stock rallies nearly 700% in 2023 amid CVNA short squeeze

Used car retailer Carvana (NYSE: CVNA) has experienced a remarkable turnaround this year, with its stock embarking on a monster rally. After hitting record lows in Q4 2022, Carvana’s shares have surged to unprecedented heights. 

Notably, CVNA skyrocketed by an impressive 683% since the beginning of the year, positioning the company as the leading year-to-date (YTD) performer among stocks with a market capitalization exceeding $5 billion.

Best year-to-date performers among stocks with a market cap of $5 billion or more. Source: TradingView

What’s behind CVNA’s monster rally?

Carvana’s stock market resurgence this year has been largely driven by a “short squeeze,” a phenomenon that occurs when a surge in buying activity forces short sellers to cover their positions. 

Short sellers bet on a stock’s decline by borrowing shares and selling them, hoping to repurchase them later at a lower price. However, if the stock’s price starts rising, short sellers rush to buy back shares to limit their losses, leading to increased demand and further pushing the stock price up. 

The short squeeze in Carvana’s case indicates that there was a significant level of short interest in the stock, as short sellers scrambled to close their positions amid the rally, further fueling the upward momentum.

In fact, CVNA is one of the most shorted stocks at the time of writing, with nearly 50% of the stock’s float being shorted, according to MarketWatch data. This means that approximately 50% of the freely tradable shares, known as the float, of Carvana’s stock have been sold short by investors.

Carvana among most-discussed stocks on Reddit

The ongoing short squeeze in CVNA may be due to the fact that the car retailer is one of the most discussed stocks on Reddit communities, including WallStreetBets – the forum behind the 2021 meme-stock craze. 

To be more specific, Carvana is the 7th most-trending stock on Reddit in the past 24 hours, behind Nvidia (NASDAQ: NVDA), Rivian (NASDAQ: RIVN), and Tesla (NASDAQ: TSLA) among others, according to sentiment tracking website Ape Wisdom

Top-trending stocks on Reddit. Source: Ape Wisdom

Carvana stock analysis

At press time, shares of Carvana were standing at $37.68, down 3.1% on the day.

Over the past week, the retailer’s share price rallied by more than 49% and over 70% on a monthly chart.

Year-to-date, CVNA is up more than 683%, as noted earlier, adding $6.2 billion in market cap over that period. 

CVNA YTD price chart. Source: Finbold

One of the reasons behind the surge is the company’s better-than-expected financial report for Q2 2023, which reignited interest among retail traders. 

As Carvana’s stock enjoys a robust rally fueled by the current short squeeze, it’s crucial to acknowledge the looming downside risks, notably the mounting short interest. Notably, if short sellers were to change their sentiment and start covering their positions, it could impact the stock’s upward momentum.

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Disclaimer: The content on this site should not be considered investment advice. Investing is speculative. When investing, your capital is at risk.

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