The Last Horseman of the Apocalypse
Tesla reports earnings after the bell on Wednesday, January 26th. Why it may matter to more than Cathie, Elon, and the momo flock - it may be the last piece of scotch tape holding the market together.
With no doom and gloom intended, stocks are in a precarious position. (This author, for one, hopes that they go down a lot in due course as I am at the point of life where I welcome a genuine buying opportunity, though I am not betting big on that as of this moment, partially due to failing to roll positions as I was out on vacation last week and partially due to continued rehab from my past bearish bias.)
But Tesla may be the last horseman of the apocalypse to arrive and manifest fire and brimstone when they report earnings on Wednesday, January 26 (2022). This opinion is driven by the fact that Tesla has held up better than most peers of all types on an absolute and technical basis over the past few months and in more recent days/weeks.
Lets look at some other securities to compare and contrast:
First, the S&P 500. Not a lot of TA voodoo on the below, but it broke its COVID-euphoria uptrend quite a while back, still managed to make new ATHs, and recently broke through the 50 DMA and is now teetering around the 200 DMA. (It looks like it may get back above it on Monday if Sunday night futures action holds up). But if it gives it up, there aren’t a lot of obvious support areas - looks to be round numbers like 425, 400, and 375. (Not predicting a crash to any of those levels, just eyeballing the chart).
Next, lets look at some big tech mega cap stalwarts, GOOGL and AMZN.
GOOGL broke its COVID uptrend channel a few months back but like SPY, made new ATHs before rolling over last week. It also has plenty of air underneath it. I have no specific target here but I’d love to own it cheaper (its a simple and lucrative business). Eyes on 2250 or 2000 if there is panic.
AMZN lost an even cleaner COVID channel and then totally shit the bed last week. (I, in my cowardice and out-of-office half-monitoring, closed out my $3100/3050p spread bought a while back for $200 at $2900 on Thursday - what a shame, in both that I wasn’t a bolder in size or strikes when I put the trade on). If it doesn’t bounce and hold $3000 then once again, there’s not a whole lot below. AMZN is a bit of a more complicated business than GOOGL and I don’t have a “start accumulating” price target on it but it’s going to be around for forever so if the blood really runs, I’ll be ready.
So, on one hand, these are TSLA’s peers - megacap tech. GOOGL and AMZN have totally lost technical support (in my opinion) which is already bad for the general market.
But TSLA has other peers - call them what you want - COVID winners, momo trash, Cathie’s bags, etc. And out of these, TSLA is the last survivor that has held up while others have mostly come back to earth. No lines/attempted TA on these charts since I don’t follow these stocks closely but the pictures are clear enough on their own:
Zoom (ZM) - down from $550 pandemic euphoria to $150. -70%.
Docusign (DOCU) - down from $300 to $116, -60% (thanks to that earnings miss - nice to see at least a few WSB bros got rich off of some yolo puts).
Shopify (SHOP) - not even as much of a one trick pony/total trash as the prior two, but still now down 50% from its peak.
And here’s one hybrid - NFLX - enjoyed quite the robust COVID rally for being a fairly established and already frothy stock (250 to 700), fell ~30% since its peak in fall 2021, and got obliterated by 20% in a day on Friday after putting in a melancholy forecast.
Which brings us to TSLA - the final beacon of hope for momo investors and the broader market. (Sorry for the busy chart - but as my twitter buddies know, I watch/trade Tesla more than anything else despite no longer caring about the fundamental story much - so we’ve got a lot of lines here, some of which will be discussed below).
Tesla went up just as much (or more) as the other COVID winners (despite not really having any type of work-from-home, acceleration of the world-on-the-internet, etc. thesis behind it). Measured from either late 2019 (before its first parabolic run) or the March 2020 COVID low (both around ~70), it went up more than 1000% - but Tesla has not yet declined nearly the extent of any other internet/momo/COVID-benefit stock. (Even boring old Amazon has fallen more from its ATH than TSLA).
So, this is why I think TSLA will be the market’s last stand on Wednesday afternoon. And, candidly, I have no idea how that will go - I don’t try to read the TSLA “fundamental” (headline) tea leaves the same way that I used to, I just mostly look at the chart, which is currently in a bit of a no-mans land.
On a “fundamental” basis - things could go either way.
On the bullish hand:
Deliveries in Q4-21 and FY2021 were fantastic, which could certainly beget solid financial results. Much of the volume is in China, which is generally more profitable but also more opaque and more politically complicated (from expatriating funds to what happens if relations deteriorate or if Elon makes them mad and they can kind of do whatever they want to the company).
There are still pumps out there - FSD is forever just over the (camera-only system blinded by the sun) horizon, and with a price hike already teased by Elon, perhaps this is The Year It Finally Happens and the robotaxi network goes online and Tesla makes 10% of world GDP in net income from taxi hails (source: Cathie’s model). There are two new factories coming online in 3 weeks maybe, a while definitely (Texas and Berlin). There is the Cybertruck but I will discuss that in the bearish bullets as I think it may better belong there.
On the bearish paw:
Similar companies have recently walked back estimates. See NFLX and DOCU above, absolutely destroyed by their management being humble (or realistic) enough to walk back the pie-in-the-sky a little bit. Tesla’s current forecast (internal and the street) is ~50% unit growth in perpetuity - and with the two factories coming online, it may not be impossible - but the question becomes, can every car that Tesla makes, the world take? Or, like beautiful Trenton NJ who coined such phrase, will there be disappointment as the world’s appetite for Model 3s and Model Ys is mostly already met by current facilities and there will be no yuge volume boost from new capacity?
Cybertruck - as mentioned, this is a grey area but I’m going to put it in the bearish category due to a bit of tea-leaf reading (though again I admit I’m rusty). They pulled the configuration tool from the website. The years-ago specs promised seem unrealistic in terms of price vs. features and configurations. Elon has promised an update on this conference call. If I had to guess, the promise of the world’s first techno-punk pickup will be walked back - a more boring vehicle (considering the prototype isn’t street legal or practical), a more expensive price tag, etc. Considering Cybertruck (along with FSD) is “the next big thing”, a delay, price increase, spec decrease, normie styling, etc. may be very bearish to the dreamer-”investor”.
Wild cards:
From my continued for-better-or-worse fascination with some of the anti-Tesla conspiracy theories, it has come to my attention that Elon once again met with Larry Ellison this past weekend. Last time he did that was late 2020, and to my recollection, no material news leaked on the substance of the meeting, but Tesla stock shortly thereafter temporarily peaked and then declined nearly 40%. I wonder what they’re discussing now, or perhaps Elon just wanted some sun in Hawaii.
Elon early-exercised some options and discretionarily sold a few billion dollars (pocket change to the world’s richest man) in shares in late 2021. Perhaps that means he’s OK with a bit of a decline now? A bunch of other Tesla directors (including our favorite, Kimbal) sold out around the same time. Could it be opportunistic coincidence? Absolutely. Could it be that they felt times are frothy and it is time to walk things back? Perhaps.
In conclusion - I’m rambling. So time to wrap this up.
To return to the chart (most of what matters, in my opinion) - Tesla is still middling along and we are far form an actionable point (unlike when I went long on a breakout in late 2021, which luckily worked out fantastically). Even if earnings is a disaster this week, the chart is not on the brink of oblivion - eyeballing it, based on my imaginary lines, I think we have support around 875 (early 2021 peak and late 2021 breakout), 850 (uptrend channel), and low 800s (200 DMA). After that, another line around 750 - so we are not teetering on the abyss going into ER.
But, to me, the bigger question is, how much market cap can be destroyed in a stock at one time? Tesla is still worth almost $1 trillion ($1,000,000,000,000). Sure, NFLX gave up 20% on Friday, but that was *only* about $40b, or a ~5% move in TSLA at today’s prices. Can TSLA fall 20% in a day and destroy $200b in market cap? There’s a first for everything … but betting on those firsts is a bit baggy (albeit lucrative if correct). If so, it’ll destroy the market. But that makes it a chicken-and-egg problem - can such a move even happen?
So as for now, I haven’t bet on this ER. I’ll post again in the coming days if I do. Perhaps there is a tangential bet that is cheaper considering that TSLA IV is high (e.g. QQQ puts). Perhaps TSLA (and markets) rally into Wednesday and puts get cheaper and then it is worth taking a long-shot swing here.
Either way, I do think that this has some black-swan potential - not necessarily in terms of a single-day massive trade but in terms of having a medium-term impact on the overall market. If Tesla, up a gazillion percent on not much other than momo, finally trades like ZM or DOCU or COIN or NFLX and gives back ~50% of its not really deserved gains, it will be the straw that breaks the indices’ back.
Even if you don’t trade Tesla or don’t trade much at all, I felt compelled to put it on your radar. This week will be important.
Yours,
Elmo
Addendum 1: It was implied above, but to directly state it, TSLA could certainly satisfy this ER, go up a ton, and save the markets. The above has a bearish slant overall, which is, finger in the air, how I’m leaning on things playing out as what goes up eventually probably comes down, but this ER is important not just because it could be the straw that saves the camel’s back, but because it could also be salvation.
Addendum 2: I also want to note that I do not subscribe to the TSLA-hater theory of “I can’t believe the S&P committee added TSLA to the index, its so irresponsible, it’s going to crash one day, blah blah blah”. TSLA is like 2% of the S&P 500 - sure it’s a large component but its existence in it is not threatening in and of itself; rather I think it’s that it’s a beacon of strength, and if the S&P 500 ship loses that lighthouse beacon in this choppy sea, it’s a problem. I guess ultimately perhaps we arrive at the same result (pain for indices), but I wanted to be clear that I do not view its existence in the index as troubling. In my opinion, a big TSLA drawdown would have wider market impacts due to psychological rather than purely mechanical index-calculation effects.
The Last Horseman of the Apocalypse
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