it's all just numbers on a screen
stocks go up, stocks go down, can't explain that. TSLA to $1500?
So, Tesla is back to being the talk of the markets after mooning over the past handful of sessions.
After reporting solid (but not earth-shattering results) after the bell on October 20th, TSLA shares didn’t do all that much on that Thursday or Friday. The bar pointed to below is Thursday, Oct 21st - TSLA actually opened red before reversing and closing the day up about $30, and tacked on a bit more on Friday, closing the week at $910 after closing the night before earning at $865.
Then, it was time to meme.
On Monday, October 25th, Hertz announced that it would buy 100,000 cars from Tesla. While one can certainly debate whether or not that will actually be impactful to future Tesla results, it was the fodder for the fire, and since then, TSLA has gone almost straight up.
At this point, it is utterly pointless to even think about “reality” other than the reality of moves in the stock price. Momentum begets momentum. Plenty of fintwit accounts (some who actually seem smart, some who seem to think they are smarter than they really are) point out or cry fowl about “gamma squeezes”, which is the idea that call buying (which is how many retail normies and, certainly, institutions trade tesla) forces market makers to hedge the calls they write by buying shares, which creates a positive feedback loop of the price spiraling higher. I personally think it’s much simpler to just attribute it to general momentum and algorithmic trading - since the time of hand-drawing charts, plenty of money is deployed into managers/strategies that double-down on strong stocks and sell weak ones.
So, we’ve established that Tesla is running. Cool. How far can it run?
The first and easiest answer: of course, no one knows. This is pure mania (whether people actually believing in the tesla story, agnostics chasing a hot stock, or computers doing what computers do and not even aware of the security they are trading). Any morning it could be down (or up) $50 or $100 for no reason other than that the algos flipped on the first scent of weakness. So, its easiest to remain on the sidelines.
But, to actually try to answer that question (and to potentially tarnish the slightly positive reputation I may have earned by calling the breakout and getting lucky that it happened): I am speculating that this current run will end around $1500.
I had initially drawn the more steeply sloped line on the log chart below which links the peaks of the past ~18 months, which yields a, for all intents and purposes, more or less infinite price target (say $4,000 per share). While I think that TSLA gaining or losing $100b in market cap in a single session is pretty much meaningless (as is the addition of ~$400b since October 20th), tripling or quadroupling from here would probably be too much.
But then my old buddy @tslaqpodcast was curious about how a line might look when incorporating the last pre-2019 parabolic move, which was when TSLA doubled in the first six months of 2017. And boy oh boy, do I think that chart works well. Linking the 2017 peak with the early 2021 peak gives us a price target on this run around $1500, which, as silly as it sounds to say, seems fairly reasonable. So, with the full caveat that TSLA could (and perhaps “should”) go down $100 any morning now, my base case is that the move ends around $1500 within the next handful sessions.
So how to play it?
#1, just don’t. Seriously, you really don’t have to do this to yourself.
#2, as is always my answer, spreads can help in a high-IV situation like this. When I sold off the majority of my TSLA positions last week (a bit too early, sad!), I mostly took my ball and went home, but I could not resist rolling up a little bit and then I added a bit more today (as shown in the quantities below - these are “just for fun”-sized trades. Here are examples from today (the prices underneath “debit” are what they were executed at earlier in the day; the columns next to it are end-of-day quote since the stock ran into the close).
As discussed in prior posts, I figured that these were alright enough bets to make on a run continuing - 1275/1300 potentially pays $25, and I figured there was better than a 8% chance of this run continuing for another ~$100. Likewise, the $1325/1375 pays $50, thus 40-1 “odds” as I perceive it, and while that would require a few more parabolic days, I figure there’s better than a 2.5% chance of that happening. And of course, for better or for worse, one can sell at any time - sadly a lot of my pre-earnings spreads that are now fully in the money were sold by your cowardly author for 50 or 70 cents on the dollar of full potential - but so it goes.
#3, and, when the upward momentum expires, there will likely be some kind of retracement - perhaps not immediately, but almost certainly without too much delay. During the past three runs, we had three different topping mechanisms. In the first, there was a big intraday reversal, with an intraday high of ~$360 after a prior close at ~$310 and a close in that session at $300 (only down ~3% from the prior close but down ~20% from the intraday high) - and then shares meandered. In the August run, shares quickly retraced almost all of a parabolic move within a week’s time, but if I remember correctly there may have been a broader correction at the time. And during the early 2021 peak, shares basically stagnated for a month after making the prior ATH around $900, but then retraced ~2/3 of the move from $400 to $900 (went down from $875 to $550 over the course of a month).
For this run, I had originally figured that after the Hertz madness day, there was a potential to retrace and fill the gap back down to $900. Now, that may be too far away and $1000 may be a pretty strong psychological support level. But if we do complete the move to ~$1500, I’d expect a retracement of half or two thirds of the move (which started around $800), so there should certainly be an opportunity to bet on the stock falling $200-300 in a month’s time at some point.
But, in my opinion, we are not yet at that point. We may wake up tomorrow and find ourselves at that point and have missed the boat (and for that reason, I have nibbled on some puts which thus far just become worthless the day after purchasing), but for now, strength begets strength. Elon may still have a stock split up his sleeve (which of course is meaningless other than that it has caused stocks to rally when announced over the past year or two because hey that’s investing in 2021 baby).
The only thing that bulls have to fear is CNBC pinning TSLA to the ticker at the bottom (which marked the top within 24 hours last time it happened.
Have fun,
Elmo