The drumbeat is quickening ahead of TSLA’s impending fall. Bears who believe it will be easy to profit from this should think twice after Friday’s experience. Although I’d recommended buying some out-of-the-money puts a day earlier, the company’s shares were among the session’s biggest gainers in the institutionally-worshiped-sector. The rally was pure short-squeeze, announcing very clearly that everyone is short the stock, or wants to be. Whenever that is the case, bears should fasten their seat belts and prepare for an extremely rocky ride.
It is not unknown for shares of a company to rise even with news stories of criminality swirling around them. The Equity Funding scandal was a notorious example. Although the stock fell steeply on most days, there were moments when it rallied ferociously on short-covering. Inevitably, these rallies were ascribed to the possibility that maybe, just maybe, the most salacious things being reported about Equity Funding were untrue. Unfortunately, this proved not to be the case. But that didn’t stop some of the smartest investors on Wall Street from buying stock up until the moment the SEC halted trading for good.
Shades of DeLorean
I don’t mean to suggest that Tesla CEO Elon Musk is a crook. In fact, he is one of my heroes. But it appears that in shifting money between various Musk enterprises, including SpaceX, and in booking car sales aggressively, he may have pushed the boundaries of accounting beyond their conventional limits. Read the stories linked here, here and here and you will find it hard to disagree, even if you are as big a fan of Musk as I am.
The chart (click on inset) shows what could happen to the stock when its institutional supporters begin to jump ship. This grave turn of events will seem to happen overnight, sending the stock spiraling into the $150-$200 range where it consolidated for 2017’s spectacular push to $400. No matter how scandalous the reports, the stock will have its good days. Whenever that happens, do not doubt that the company is headed toward the same, tragic end as DeLorean Motor Company. Unlike the DeLorean, however, the car will become an albatross for owners rather than a collectible._______ UPDATE (Mar 11, 9:50 p.m.): The stock had one of those ‘good’ days mentioned above, rallying sharply along with the broad averages. It is clearly benefiting from the eagerness of every trader on the planet to be short it. Regardless, look for a Hidden Pivot resistance at 293.81 to show some potentially tradeable stopping power. You can use that number as a minimum upside projection for the near term. _______ UPDATE (Mar 17, 6:30 p.m.): It took a ratcheting short-squeeze to 295.39 that lasted two weeks to burn out the very last bear. And now, we needn’t guess about where the stock is headed as it falls anew: 251.28. Here’s the chart. ______ UPDATE (Mar 27, 10:01 p.m.): TSLA is arguably the only institutionally manipulated ‘lunatic’ stock backed by a company that could go bankrupt, so it should come as no surprise that the short squeeze rally that has been driving it lately has been so nasty and relentless. The 251.28 Hidden Pivot support is still theoretically viable as a target, but the rally from within $3 of it has negated its usefulness.