Cheap Chinese LED helicopters are a great source of multicolor blinking LEDs for air rockets. They're about $0.50 each on Amazon. This set comes with a red-blue blinking LED, a little case for three hearing aid batteries, and a switch to turn the LED on and off.
We remove the plastic helicopter wings and trim the helicopter stem above the LED. You can then tape the LED, battery housing and switch to your paper rocket. It makes it much easier to track and find the rockets after dark!
Shooting rockets over snow in the dark, we found that they would sometimes bury themselves too deep to spot the LED. The next time we try night-time rocket launching, we're thinking about adding a stripe of reflective tape to the tail of each rocket. I've used SOLAS marine reflective tape on my bike. Reflexite comes in different colors.