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I understand your reasoning. But I think Tesla has much more risk than S&P 500. For instance, Tesla can go to bankruptcy, S&P 500 can't.
Yes it can. I'm sure you learned what happened in 1929?

Tesla has a particularly interesting safety net against bankruptcy: Larry Page has said he'd give Musk whatever money he needed.
 
Suggest it might be more useful to define the risk under consideration, before the conclusary statements are offered.
Ding ding ding. We have a winner. I defined what sort of risk I care about. Other people care about different sorts of risk.

There are certainly companies less risky than Tesla and I have stock in a few of them.

But the complete cacophony of market-cap-weighted randomness of the S&P 500? You're making a bet that a bunch of incompetents will average out to something good. There are multiple decades where that's a great bet -- basically bets on the entire US or entire world economy -- and then there's World War I, 1929, 1909, etc. etc. etc. etc.

I do not like that risk. It is low probability but very nasty when it happens. Others blithely ignore it.

I should note that I correctly timed exits from both oil and (most) financials in 2008, so avoiding bad-at-this-time sectors and bad-at-this-time companies is actually something which I have a skill at which allows me to make safer-than-market investment choices. Others may lack this skill and be better in indexes.

It's unfortunate that most of the "indexes are safe" evidence is from the 20th century in the US. If you pick a different century or a different country... it starts looking riskier.

There are recent studies showing that indexes do better than stock-pickers in bull markets but not in bear markets. One way to look at this: I'm hedging myself against the bear markets.
 
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Here's why I think we've got a good chance at seeing TSLA hit $380 this year.

For this exercise I'll use mostly a technical and psychological approach with only a minor emphasis on fundamental valuation. I think fundamental valuation is helpful to see where a stock might head mid to long-term, but for more short-term purposes (i.e, less than a year out), I think it's more helpful sometimes to look at things from more of a price action/technical view.

So let's look at the past 3 years of TSLA.

tsla chart.png


As you can see from the chart, TSLA has been trading over the past 3 years in a consolidated range of 180-280 (with the exception of a brief fall into the 140s in Feb 2016).

TSLA hit ATHs in Sept 2014, and after testing 180, it again tried to break through ATHs in July 2015 but failed.

Here's the psychological view/explanation. There's lots of hype/exuberance when a stock is hitting ATHs, so in August/Sept 2014 a lot of people bought into TSLA out of fear of missing out. However, when the stock turned down, they were in pain. A lot of pain, especially as the stock headed to $180. Now, for the individual investor that's a lot of psychological stress/trauma to go through. Can you imagine forking over a lot of money into TSLA at $280-290, only to see your investment go down 35% in just a few months? And as it goes down, there's nothing you can do... some ponder selling, but it's too painful to sell for some. Some can't handle to pain, so they sell just to end the pain (and they probably sell near the bottom).

So when the stock rises again to $280 or so, those who had previously purchased around there want to sell because it's their opportunity to end this terrible chapter. They're able to get out without a loss, and they're just happy to not feel the pain/trauma/stress/anxiety anymore.

Now, this happens with almost all stocks that hit ATHs and then retreat to consolidate. To break through ATHs, the stock must break through the selling pressure of all the investors who had bought near the high and are selling. If there is enough buying pressure, the stock breaks through and reaches new highs. If there's not enough buying pressure, the stock retreats and consolidates for another try later.

This is what happened to TSLA in July 2015. Not enough buying pressure to break through the selling pressure. And again in April 2017. And again most recently in February 2017. Each time, as we approached ATHs there wasn't enough buying pressure to break through the selling pressure.

As long as the company's fundamentals keep improving, then this will usually create additional pressure for the stock to eventually break through and create enough buying pressure to break through to new highs.

In TSLA's case, Tesla's fundamentals keep improving (rising revenues, strong Model 3 prospects, etc) as shown in 2016 Q3 earnings and Q4 earnings. And as this 3 year consolidation period lingers, this only adds to the buying pressure that will be needed to break through to new highs.

So, what happens when TSLA eventually breaks through to new highs? Well, prior to the new highs there's a lot of hesitant investors in the market... folks that really like TSLA's prospects but are too timid to get a sizable position. When the stock rises to new highs, those folks start regretting not buying more TSLA when it was priced lower. So, they start thinking "once TSLA is back at $2XX I'm going to buy". The problem is the stock has built up all this buying pressure for over 3 years, and the folks that wanted to sell their TSLA in the 180-280 range have already sold their shares, so the stock keeps going up. In other words, there's a strong support at the previous ATHs of about $280. If the stock were to go lower than that, people (who regretted not buying enough earlier) would buy it up thinking it was their chance.

So how high does TSLA go? Well, it probably will go up until it's hard to go much higher. And then it will reverse and test the support at $280-290, and if that holds then proceed to go higher... either testing the newly set ATHs, or breaking through to even higher ATHs.

With a high-growth, highly-controversial stock like TSLA, there's a wide range of opinions and views on the company. Thus, this creates a wide range of volatility. In other words, the new range that TSLA consolidates at will likely be a wide range... however it will likely be above the previous consolidated range of 180-280. So, it's possible the new range TSLA trades at might be 280-400 or so. Exactly how high and how fast all depends on too many factors to make it predictable.

But regardless, as TSLA reaches new ATHs close to $400... we'll start hearing the same bear narrative of "TSLA is overvalued, etc". But there will be a lot of exuberance as well.

Please note that all of this is my speculation and shouldn't be taken as trading advice as you should trade at your own risk.

Cheers.
 
H
Here's the psychological view/explanation. There's lots of hype/exuberance when a stock is hitting ATHs, so in August/Sept 2014 a lot of people bought into TSLA out of fear of missing out. However, when the stock turned down, they were in pain. A lot of pain, especially as the stock headed to $180. Now, for the individual investor that's a lot of psychological stress/trauma to go through. Can you imagine forking over a lot of money into TSLA at $280-290, only to see your investment go down 35% in just a few months?

Well, I do in fact have a TSLA lot purchased at $283 (IIRC) and it never bothered me much because I'd done my fundamentals analysis. I've shrugged off 50% drops in other stocks when I knew I was making a long-term play (and they did work out well).

So it's very hard for me to *sympathize* with this psychology you describe -- I can't imagine that reaction because I have done that and it didn't bother me. But I do greatly appreciate your attempt to analyze the psychology of the average (i.e. money-losing) investor, given how alien it is to me. :)

And as it goes down, there's nothing you can do... some ponder selling, but it's too painful to sell for some. Some can't handle to pain, so they sell just to end the pain (and they probably sell near the bottom).

So when the stock rises again to $280 or so, those who had previously purchased around there want to sell because it's their opportunity to end this terrible chapter. They're able to get out without a loss, and they're just happy to not feel the pain/trauma/stress/anxiety anymore.
People are *so weird*. This is just not how competent investment is done. This actually ties in to what I've been saying about proper evaluation of risk.

There are all kinds of fundamentals risks to Tesla: I've analyzed all of the ones I can possibly come up with and concluded they are all hedged (...until 2019, when I will reevaluate). There are lots of unhedged fundamentals risks in the S&P 500. Which is riskier? The answer is not the same as "which is more volatile".

I sell when my long-term thesis has failed or run out, which is usually when management does something highly undesirable -- as when Bombardier decided to *shut down and sell off their profitable businesses* in order to support an unprofitable speculative venture... I just wasn't expecting them to *do that*; it was a risk which I had not identified, let alone given a high probability to. For another example I recently sold an insurance company stock when I discovered that they had sold off nearly their entire insurance business and were trying to sell off the last piece, leaving them as a (poorly run) investment fund... that wasn't the company I'd analyzed or intended to own, so time to get out. Or I sell when the stock has overpriced for the high-end estimate of my long-term thesis, which is actually much rarer. I hold when my long-term thesis remains viable. The price fluctuations are of little import.

It makes me sad that so many people are trading on such base psychology as you describe. They shouldn't be in the market and they will consistently lose money by having such psychology. But I guess it's something which is worth understanding because I can make more money off understanding it.
 
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How do you know that Elon would say that?

Why do you consider Elon to be a market oracle?
Good point. Elon put in his letter to employees over the union stuff something along the line that he expects the next 4 years to be like the last 4. He didn't give a probability like he normally does but it sounded like a vote of confidence to me for good share price performance.
 
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Nice post Dave!

No doubt in my mind that Tesla will eventually bust thru ATH at $286

Went it does it'll certainly run hard after $300. Yep, $286 will become strong support since it's tried to bust thru multiple times

Seems reasonable that it could happen this year since the fundamentals will begin to strengthen.
 
So, Tesla just announced Q1 deliveries of just over 25,000 (Tesla Q1 2017 Vehicle Production and Deliveries (NASDAQ:TSLA)).

This is fabulous news. For one, most people were expecting a delivery number of 21-23k (roughly). Tesla's guidance for 1st half of 2017 is 47,000-50,000 deliveries. So for Tesla to deliver 25k cars in Q1 means they can easily meet their 1st half guidance, and even have a good chance of beating it.

Second, 25k deliveries for Q1 sets up a likely strong Q1 earnings (which will report likely in early May).

Third, strong Q1 sales demonstrates the resilience of Model S and X demand.

I had previously shared four recent de-risking events that I thought could drive TSLA higher (2017 Investor Roundtable: TSLA Market Action):

1. Q3 blowout earnings. First earnings to show Tesla at a 100k vehicle run rate.
2. Q4 earnings showing SCTY finances integrated and not big risk.
3. $1.2-1.4B raised to de-risk cap needs.
4. Repeated confirmations that production of M3 is on track for July deliveries.

Since then, we now have two more key de-risking events:
5. Tancent revealed that they now own a 5% stake in TSLA.
6. Tesla delivers 25k cars in Q1.

Further, we have some imminent potential catalysts coming up as well:
7. Q1 earnings in early May.
8. First Model 3 deliveries in July.

All of these past and future events provide a good foundation and possible fuel by which TSLA could break out of it's 3-year consolidation range of 180-280. And after it breaks out, then 280 could provide support.

Besides these fundamental reasons for TSLA to break out into the 300s (which we could see as this week), there are also technical (and psychological) reasons also as I shared in this post, Articles/megaposts by DaveT .
 
So, Tesla just announced Q1 deliveries of just over 25,000 (Tesla Q1 2017 Vehicle Production and Deliveries (NASDAQ:TSLA)).

This is fabulous news. For one, most people were expecting a delivery number of 21-23k (roughly). Tesla's guidance for 1st half of 2017 is 47,000-50,000 deliveries. So for Tesla to deliver 25k cars in Q1 means they can easily meet their 1st half guidance, and even have a good chance of beating it.

Second, 25k deliveries for Q1 sets up a likely strong Q1 earnings (which will report likely in early May).

Third, strong Q1 sales demonstrates the resilience of Model S and X demand.

I had previously shared four recent de-risking events that I thought could drive TSLA higher (2017 Investor Roundtable: TSLA Market Action):

1. Q3 blowout earnings. First earnings to show Tesla at a 100k vehicle run rate.
2. Q4 earnings showing SCTY finances integrated and not big risk.
3. $1.2-1.4B raised to de-risk cap needs.
4. Repeated confirmations that production of M3 is on track for July deliveries.

Since then, we now have two more key de-risking events:
5. Tancent revealed that they now own a 5% stake in TSLA.
6. Tesla delivers 25k cars in Q1.

Further, we have some imminent potential catalysts coming up as well:
7. Q1 earnings in early May.
8. First Model 3 deliveries in July.

All of these past and future events provide a good foundation and possible fuel by which TSLA could break out of it's 3-year consolidation range of 180-280. And after it breaks out, then 280 could provide support.

Besides these fundamental reasons for TSLA to break out into the 300s (which we could see as this week), there are also technical (and psychological) reasons also as I shared in this post, Articles/megaposts by DaveT .
Dave,

What`s your take on the possibility of a short squeeze?

I think many of us expected it to happen as TSLA was on it`s way up 30%+ this year, but there were no fireworks. Maybe we just haven`t reached that threshold, maybe it would be more of a balloon slowly deflating rather than exploding, I am not much of an expert in this, but you gotta think once we go past ATH or even past 300, it would be kind of inevitable.

Would love to hear what you or @jesselivenomore think about this.
 
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Dave,

What`s your take on the possibility of a short squeeze?

I think many of us expected it to happen as TSLA was on it`s way up 30%+ this year, but there were no fireworks. Maybe we just haven`t reached that threshold, maybe it would be more of a balloon slowly deflating rather than exploding, I am not much of an expert in this, but you gotta think once we go past ATH or even past 300, it would be kind of inevitable.

Would love to hear what you or @jesselivenomore think about this.

TSLA's got a few things going for it that makes it an especially volatile stock. For one, the high short interest. It tends to exaggerate moves both to the upside and downside because there are more shares on the market. Second, Tesla's a high-growth stock whose value is largely based on future projections, which nobody can agree upon. That makes it so that Tesla's valuation range is extremely wide, thus contributing more to TSLA's wide range of volatility.

So, when TSLA's going up there's going to be a natural "squeeze" effect of sorts where underwater shorts need to cover, and buyers join in on the upward rise. Now, how far that "squeeze" takes the stock is anybody's guess. Personally, I think we've got such a long consolidated base of 3 years at 180-280, that 280 can act as a support for the stock to make it's next leg up. And as it does so, that next leg up could be higher than a lot of people think. Of course, all this doesn't happen in a day, but it could happen faster than a lot of people think. I wrote a while back I thought TSLA could see 380 by October. But I wouldn't be surprised to see that much earlier. And I wouldn't be surprised to see mid 300s by Q1 earnings either. Nor, would I be surprised to see a ton of volatility as well. At some point, traders who rode the ride up will start to bale as it stalls, and shorts will start pilling in again, and we could see a big move down to try to test support.
 
TSLA's got a few things going for it that makes it an especially volatile stock. For one, the high short interest. It tends to exaggerate moves both to the upside and downside because there are more shares on the market. Second, Tesla's a high-growth stock whose value is largely based on future projections, which nobody can agree upon. That makes it so that Tesla's valuation range is extremely wide, thus contributing more to TSLA's wide range of volatility.

So, when TSLA's going up there's going to be a natural "squeeze" effect of sorts where underwater shorts need to cover, and buyers join in on the upward rise. Now, how far that "squeeze" takes the stock is anybody's guess. Personally, I think we've got such a long consolidated base of 3 years at 180-280, that 280 can act as a support for the stock to make it's next leg up. And as it does so, that next leg up could be higher than a lot of people think. Of course, all this doesn't happen in a day, but it could happen faster than a lot of people think. I wrote a while back I thought TSLA could see 380 by October. But I wouldn't be surprised to see that much earlier. And I wouldn't be surprised to see mid 300s by Q1 earnings either. Nor, would I be surprised to see a ton of volatility as well. At some point, traders who rode the ride up will start to bale as it stalls, and shorts will start pilling in again, and we could see a big move down to try to test support.
Thanks!

My thinking is, that moments like this, the great Q1 delivery numbers, are just "gravy". Sure this helps dispel some of the doom & gloom BS on S&X demand and put a couple dozen million of net profits on the table, but the real deal will be Model 3 deliveries starting on schedule and meaningful ramp / reservations being converted on schedule. Once proof is in on that one, all bets are off on how high we go.

And then we have a couple of wildcards on TE. Not just Powerpacks and Powerwalls, but also any surprising (?) preorder number on Solar Roof could repeat the M3 preorder boos to TSLA.
 
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TSLA's got a few things going for it that makes it an especially volatile stock. For one, the high short interest. It tends to exaggerate moves both to the upside and downside because there are more shares on the market. Second, Tesla's a high-growth stock whose value is largely based on future projections, which nobody can agree upon. That makes it so that Tesla's valuation range is extremely wide, thus contributing more to TSLA's wide range of volatility.

So, when TSLA's going up there's going to be a natural "squeeze" effect of sorts where underwater shorts need to cover, and buyers join in on the upward rise. Now, how far that "squeeze" takes the stock is anybody's guess. Personally, I think we've got such a long consolidated base of 3 years at 180-280, that 280 can act as a support for the stock to make it's next leg up. And as it does so, that next leg up could be higher than a lot of people think. Of course, all this doesn't happen in a day, but it could happen faster than a lot of people think. I wrote a while back I thought TSLA could see 380 by October. But I wouldn't be surprised to see that much earlier. And I wouldn't be surprised to see mid 300s by Q1 earnings either. Nor, would I be surprised to see a ton of volatility as well. At some point, traders who rode the ride up will start to bale as it stalls, and shorts will start pilling in again, and we could see a big move down to try to test support.

Here's a few words about today's price action.

tsla5min.png


First, high volume. 13.7M shares traded.

Second, notice how the price didn't let up all day and ended near the day high. This shows a lot of strength.

This is a situation where it appears that certain shorts are trapped. There are large funds with big short positions on TSLA. These funds typically when forced to exit their short position in a situation like this (where it appears the stock will continue to run due to an unexpected catalyst) are unable to cover their large short positions in a day so they cover their positions over a few days or longer. Thus, what we saw today was a lot of activity - shorts covering, buyers buying, scalpers coming in, etc. But in all the activity the large shorts didn't have an opportunity to fully cover and the situation keeps escalating thus warranting shorts (at least those that want to save their pants) to exit. So, there's a very good chance that the short covering continues tomorrow, and we see TSLA in the 300s. From there, there could be additional short covering alongside momentum traders piling in trying to ride this breakout to new highs. Good times for TSLA longs.
 
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