Carvana spikes 30% to extend massive 2023 gains amid meme-style short squeeze

• Carvana shares surged 30% on Monday as the retailer extends its 2023 rally.
• The company holds the second-highest short interest at 59%, according to MarketWatch.

Carvana surged 30% on Monday as the online used-car retailer extends its massive 2023 rally.

Shares have soared 108% in the past month, after plunging 94% last year from rising inflation and falling used-car prices. The stock closed at $10.08 on Monday.

Short sellers are placing bets that the firm's rally won't last as it faces a slew of financial problems, including looming bankruptcy concerns. Additionally, Carvana stock will likely be sensitive to the Federal Reserve's rate hike announcement later this week.

The Arizona-based company holds the second-highest short interest at 59%, per MarketWatch, meaning that more than half of floating shares are in the hands of short sellers betting the stock will fall.

Meanwhile, Carvana is resorting to a "poison pill" strategy to deter hostile takeover attempts before the company can fix its financial issues.

But the Carvana rally is reminiscent of the meme-stock craze in 2021, when GameStop spiked 134% in a concerted effort by retail traders on Reddit to raise the value of the video game retailer's stock.

That created a so-called short squeeze in which retail traders target a stock with high short interest. Their coordinated purchases push a stock up, forcing short sellers to close their positions by buying the stock they're betting against, adding further fuel to a rally.