- The verdict is in: Bears remain put. Pun intended.
- This article presents one more indicator of persistent short activity.
- Both bulls and bears may want to consider risk-reduction strategies.
Both Tesla (NASDAQ:TSLA) bulls and bears have dug in their heels, which could lead to higher volatility in Tesla's stock. Combined with the recent increase in macroeconomic and political risks, investors on both sides of the isle may want to consider risk-reduction strategies.
The Stock Has Underperformed
Since the major run-up from December 2016 through June 2017, Tesla's stock has greatly underperformed the major indices:
The above graph illustrates that, in the last nine months, Tesla's stock has declined by 12%, whereas the S&P 500 and Nasdaq have increased by 11% and 18%, respectively. In other words, Tesla's stock has underperformed the major indices by as much as 30% in just nine months.
The primary reason for the recent underperformance is most likely the back-to-back Model 3 production delays. Despite those setbacks, in the most recent earnings release, and in a subsequent 8-K filing, Tesla reaffirmed its "target weekly Model 3 production rates of 2,500 by the end of Q1 and 5,000 by the end of Q2."
More importantly, however, Tesla's Elon Musk noted in the last earnings call:
We feel like the error bars around the unit volume predictions are getting smaller with each passing week.
Elon made that comment on February 7, which means that when Tesla releases its 1Q 2018 Production and Delivery Report in the first few days of April, or eight weeks after the above comment, the company may provide investors with guidance for the rest of 2018 with a higher confidence level.
Whether such guidance will benefit bulls or bears remains to be seen.
Short Interest Remains High
Nasdaq recently released the latest short interest data, which showed that bears remain committed to their positions:
In addition, the following graph illustrates that short volume has reached nearly 70% of total volume on Friday, which is near all-time highs:
The graph below presents the same data over a longer period:
Readers should note the disclaimer shortvolume.com provides.
Having said that, as estimated by the website, Friday's short volume to total volume percentage of 70% was at a one-year high.
This stunning observation may explain why TSLA bounced down so strongly from $360 last week:
Several key events will drive the stock price in the near future.
First, Bloomberg created a neat tool that estimates the weekly Model 3 production rate by relying on data from official U.S. government resources, social media reports, and direct communication with Tesla owners. The tool recently showed a significant dip in the production rate, which if true and proves persistent, could lead to further slump in the share price in the coming weeks.
Second, Tesla will soon announce its 1Q 2018 Production and Delivery Report, and if the company reaffirms its guidance for a 5,000-unit weekly production target by the end of Q2, then the stock could react positively.
Several other macroeconomic and political risks, such as volatile interest rates and oil prices, as well as the rising possibility of global trade wars, can swing the share price in either direction. Investor beware.
Bulls are not selling - bears are not covering. Something's gotta give. One thing is for certain: TSLA is volatile, and such may be life for investors on both sides of the isle. Combined with rising macroeconomic and political risks, which has led to a surge in the CBOE Volatility Index in February, both bulls and bears may want to consider risk-reduction strategies.
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Analyst’s Disclosure: I am/we are long TSLA. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
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