Papafox's Daily TSLA Trading Charts

[bdy0627]

Quick question for Papafox: Do you think the stock has remained pretty flat primarily due to short interest or due to investor uncertainty over the quarterly performance? I thought the stock was going to climb on the rumor but we have not seen that. From what I can tell, the rumor about this quarter's performance is substantial. Perhaps there will be quite a shock to the market on Monday if the rumor is true.

 

[Papafox]

Congratulations longs, we've made it to Q3 deliveries weekend. On Monday, shares to short were scarce, TSLA was up, and many of us were scratching our heads, wondering if shares to short would be kept at bay and the week would see a gradual march upward to Friday. What we saw instead was the release of lots of shares to short this week by IB, and throughout the week the more shares available to short, the lower the price action, until today, when the longs couldn't wait any longer to fill up for the Q3 delivery numbers, and so TSLA rose nicely in the morning and held the gain, despite the easy availability of shares to short.

Interestingly, the low volume is a sign of confident longs who were holding their positions, and confident shorts who were eager to get back into their positions but still had some constraint on available shares. I say shorts are confident because if shorts were ready to bail on a quick run-up, we would have seen TSLA go to 210 today instead of only to 204. Shorts, I believe, think that with new shorts coming in they'll be able to weather the storm of somewhat-good Q3 delivery news and a lukewarm Q3 earnings report. I believe they're underestimating the delivery numbers and expecting too much of a hit to margin brought about by the sale of 60kwh battery vehicles and by some discounting in the final weeks. They're going to be surprised, because I suspect higher than expected delivery numbers are going to allow a reasonable GM, in line with the couple of percentage points improvement Elon Musk predicted during the Q2 ER.

The big question for next week (besides the Q3 results) is will the shorts become unnerved and start to exit? If this happens, we will see a much higher rise in stock price, but to unnerve the shorts, we're going to have to see some really big delivery numbers or for Musk to mention positive cash flow and GAAP profitability along with the delivery announcement. If this info is held until the earnings report in early November, you might not see shorts starting to exit until then. Other things that could unnerve the shorts are an unexpectedly good SolarCity earnings report and news that Tesla's capital raise is likely going to be successful.

One surprise today was SCTY's weak performance.

If Q3 turns out to be the best quarter yet for Tesla, as Musk has indicated is likely, then we have much to look forward to in the month ahead. Enjoy your weekend.

Conditions:
* Dow up 165 (0.91%)
* NASDAQ up 43 (0.81%)
* TSLA 204.30, up 3.33 (1.66%)
* TSLA volume 2.6M shares
* SCTY 19.56, down 0.12 (0.61%)

 

[Papafox]

Quick question for Papafox: Do you think the stock has remained pretty flat primarily due to short interest or due to investor uncertainty over the quarterly performance? I thought the stock was going to climb on the rumor but we have not seen that. From what I can tell, the rumor about this quarter's performance is substantial. Perhaps there will be quite a shock to the market on Monday if the rumor is true.

I don't think there's a single explanation for Tesla's lackluster performance during the past few months. Certainly some of the recent earnings reports have been disappointing in delivery but promising in outlook, and I think we've reached a point where investors really want to see Tesla hitting some estimates. Meanwhile, both the risk of this stock and the promise of the stock have increased. The SolarCity proposed merger adds risk, the decision to move up substantial production of Model 3 by two years adds risk, but these added risks are balanced by the incredible number of deposits put down for Model 3. When you see increased risk, you see two negatives that can depress the stock price: shorts selling into new positions and risk-adverse longs getting out of the stock. Short sellers are reacting to various kinds of risk: risk of falling demand, risk of running low on cash, etc. If there's an increase in short sellers, it's because there's an increased perception of risk. The perception may be quite wrong, but it's the perception of risk that lures them in.

For Tesla to start heading higher, the company needs to show they are taking steps to decrease risk. When I say "risk" I am primarily referring to a cash shortage brought upon by difficulty raising more capital. I don't think Tesla will have any problem this year with its capital raise, but once that raise is done there will be a sense that Tesla has de-risked, somewhat. Next week, if we see large delivery numbers (and especially if they come with positive cash flow and GAAP profitability for the quarter, that exceeding of quarterly goals would be very positive because of the de-risking factor. Tesla would in effect be saying, "Look, if we slow down the growth for a quarter, we can indeed go cash-flow positive and generate a profit. The capital raise later this year becomes fairly easy, then, with the solid demand for Model 3 waiting out there and with Tesla having a profitable business as it gets ready for this next expansion phase.

With a growth company like Tesla, the revenues lag behind the investment needed to develop the new product. Once Tesla started producing the Model S in volume, the company saw profits in some 2013 quarters. Tesla them embarked upon designing Model X, building the production line for Model X, designing and building the gigafactory, designing Model 3, designing Powerwall and Powerpack products and then beginning very low output. Tesla is now ready to be close to profits or profitable this Q3 because Model X has finally ramped up to suitable production numbers. Thus, investors can see that this can be a profitable company any time when the existing production is not greatly outweighed by the development underway for new products. When Tesla Energy starts shipping products in volume, we'll have another positive bump higher, like we're seeing in Q3 with Model X production at last ramped up to good numbers.

This is a long answer to your question, but the big picture is that investors have been taking a wait and see attitude toward Tesla as the details of the SolarCity merger become known (cash requiremets, etc.) and the fairly recent decision to increase risk can be seen as a reasonable response to opportunities. In order for that extra risk to be seen as reasonable, Tesla has to show it can deliver, and that's why this quarter is so important. It's a brief pause in the tremendous capital spending needed to bring other products online and it's a chance to show that the risk of investing in Tesla is well worth it.

 

[bdy0627]

Terrific analysis. Thank you!

 

[Papafox]

I consider a run up of less than $10 a rather modest performance today, given the magnitude of the news on Sunday. Here's my take. I believe the shorts were holding the run up back as best they could, while they await the arrival of the cavalry. The cavalry is the theoretical mass of shorts hungry for shares who will descend upon TSLA and drag it down once enough shares are made available to short. At least that's their hope. The whole scheme quickly unravels if TSLA can break 215 and hold it, because then the technical traders see the green light and start jumping into the stock, which drives it up, which causes weaker (more intelligent) shorts to cover, which sends it up more, which brings out all kinds of momentum traders, which sends it up more, etc. You could make millions of shares available to short once the run up begins and it would not matter because no shorts want to buy into a rapidly rising stock. The point is that shorts know they have to keep TSLA below 215 until things start going their way. Here's how they did it today.

In pre-market trading, TSLA was getting frisky, and the chart indicates that much of the movement was horizontal at 212. Horizontal trading for this volatile a stock is really rare, which suggests someone selling to keep the stock not much above 212 in pre-market. With low volume that's pretty easy to do. At 8 minutes after market open (see the black arrow), TSLA made a deep plunge to about 208. No long in his or her right mind would be selling down to 208 after Sunday's good news, and so this must have been a preemptive strike of short-selling, trying to give longs the belief that TSLA would not soar today. Unfortunately for the shorts, longs piled into the stock quickly thereafter and the stock briefly exceeded 215. This excursion sounded the alarm bells and two selling efforts were needed to bring the SP back down to safer levels. It looks like around 11:15am or so the shorts were trying to drive the stock to 212 but they just couldn't reach it because of longs buying in. During the next rise, shorts held the stock to 214, and realizing that 212 was just too tough to hold, they sold enough to bring it down to 213, where it spent most of the day. Alas, longs were hungry for shares and around 2pm, they started bidding the price back up, so shorts capped it at 214 and then drove it down to a safer 213 later. At times the stock drifted back to 214 but shorts sold enough to keep it from going above that mark. If you look at the three lines drawn on the stock chart, the efforts to control TSLA with selling yielded remarkably horizontal lines, which to my eye is a sign of manipulation.

What to expect for Tuesday? Don't be surprised to see another preemptive strike in the morning, but I suspect it too will fail unless there's real power behind it. Look for a battle to claim and hold 215. This is Porkchop Hill, baby. Substantial upside is possible if 215 falls. The arrival of massive amounts of new shares to short tomorrow could bolster the shorts' position. A tweet from Elon saying that a preliminary look at Q3 suggests a profit would pluck, season, tenderize, and barbecue the shorts. Holding my breath.

Conditions:
* Dow down 53 (0.30%)
* NASDAQ down 11 (0.21)
* TSLA 213.70, up 9.67(4.74%)
* TSLA Volume 6.0 M shares
* SCTY 20.15, up 0.59 (3.02%)

 

[TMSE]

A tweet from Elon saying that a preliminary look at Q3 suggests a profit would pluck, season, tenderize, and barbecue the shorts. Holding my breath.

Hmm.. I thought shorts are bears, but they can be seen as turkeys too

 

[Papafox]

This is Captain Papafox, reporting from the attempt to retake Hill 215. At dawn we encountered a large counterstrike in the 209 area, but kept pushing and by 1pm we had worked our way well up the hill to area 213. Throughout the day additional reinforcement arrived for the enemy, with a large number from the Fidelity Battalion. Nonetheless, we held our losses to about 1% today and will be ready to try again tomorrow.

Some of our advisors tell us that Hill 215 might not be good enough and we ought to set our sights on Hill 217, a little nub not far up the ridgeline from Hill 215. Once on Hill 217 we'll have command of the whole valley and the battle will likely be won. Our foe must push us way back to 199 to have any serious effect on the war, that's 12 points vs. the 5 and a half points we need to move forward. Also, in the past the IB and Fidelity Battalions were coming up short of troops by end of day, but today they had plenty of troops. Instead, however, commanders were reluctant to employ those additional troops in the Hill 215 fight, which gives some idea of the morale of the enemy. On the other hand, our troops are eager to continue the battle. Tomorrow we can expect another skirmish at dawn, but if we can bust through to the green, the road to 215 and then to 217 is quite likely. Time is on our side. If the battle continues for another month, Musk arrives with the ER, which is kind of like Patton arriving with the tank corps. I think we'll have them whipped well before then, however.

Conditions:
* Dow down 85 (0.47%)
* NASDAQ down 11 (0.21%)
* TSLA 211.41, down 2.29 (1.07%)
* TSLA volume 3.5M shares
* SCTY 19.79, down 0.36 (1.79%)

 

[ggr]

I think the stock was clearly recovering, until the rest of the market decided to have a down day.

 

[Papafox]

I think the stock was clearly recovering, until the rest of the market decided to have a down day.

Yeah, it looks like the broader market's fall about 1pm coincides with TSLA's first big dip and the 3pm bottom of the broader market's second dip coincides with the beginning of TSLA's second big dip, but then the markets started to recover but the pressure stayed on TSLA. I believe there's a bias among the shorts towards pushing hard at day's end, both because of low volumes and because of a desire to show as much red as possible for the day. I'll tell you, that last hour was pretty unpleasant in my foxhole.

 

[Novice]

Yeah, it looks like the broader market's fall about 1pm coincides with TSLA's first big dip and the 3pm bottom of the broader market's second dip coincides with the beginning of TSLA's second big dip, but then the markets started to recover but the pressure stayed on TSLA. I believe there's a bias among the shorts towards pushing hard at day's end, both because of low volumes and because of a desire to show as much red as possible for the day. I'll tell you, that last hour was pretty unpleasant in my foxhole.

Even with a strong q3 the longs only had an advantage of one day before shorts got the upper hand . Seems their tireless offense will wear out the SP over time , and whatever gains will be eroded . The SP may never recover till the next major stimulus comes on, ie ER in November. Between now till Nov wonder if we can hold out against these relentless shorts.

 

[Papafox]

First, let's consider Novice's question about how to stop the downward slide of TSLA stock price that's due to the relentless selling pressure of the shorts. I think longs are looking for individual opportunity, rather than looking at how their own actions affect the big picture. After all, if longs had just held off making shares to short available until after the ER, TSLA would be much higher right now. The interest earned by lending shares is chump change compared to the effect that lending those shares has had on the stock price right now. I don't expect longs to change their focus anytime soon, either. Only big players like Fidelity are considering how their moves affect the big picture. So, when, then, does a dropping price of TSLA cause longs to start buying again? The answer is when it is too good an opportunity to pass up, and that price probably isn't too far away from TSLA's current price.

Today Fidelity made more than a million shares available to short. Most of those shares are just sitting there and will continue to sit unused. The end of supply-constraint on short-shares put some pressure on the shorts to try a bold move, and it transpired during the thin trading hours of the afternoon. So, certainly part of the reason why a decline in TSLA price happened today is because the shorts went on the warpath. Another reason is that some TSLA longs saw that TSLA was going down today while SCTY was going up, and they sold some TSLA in order to buy SCTY to be a) heading up in value, and b) to take advantage of the arbitrage gain. Consequently, the arbitrage gap between SCTY and TSLA closed by really 3% today. If you multiply TSLA's 208.46 x .11 you get 22.93, and with SCTY now trading at 20.05, the arbitrage gap is not much more than 10% now and might not be worth the added risk of owning SCTY. For this reason, the risk of longs doing further selling of TSLA to buy SCTY has been significantly diminished today.

Although it is frustrating to see these low prices and have no dry powder to do additional buying with, when the numbers of 3Q ER are known, when Elon explains that 4th Quarter is likely to be profitable too and that Tesla Energy is coming alive in a big way in 4th quarter, the stock price will run up nicely. Even though short-selling entices other short-sellers into entering new positions, the moves in stock price really hasn't caused longs to sell, as happened in the past. This time, longs are pretty much hanging onto their positions and waiting for any possible negative to come from the SCTY vote and the almost certain positives that will come from the 3Q ER. This lack of buying and selling is the big reason for the low volume we see.

Nothing has changed regarding the outlook for Tesla the company since Monday, when the stock rallied by nearly $10. All that has changed is that the shorts are trying bold moves to depress the stock price and entice other shorts to join in. Unless the longs will join in the selling, which isn't likely, there's a real limit to how far the shorts can bring the stock down from here. When that point is reached, longs start buying in to load up further for the 3Q ER, shorts take their haircuts, and the stock returns to more rational pricing levels.

Conditions:
* Dow up 113 (0.62%)
* NASDAQ up26 (0.50%)
* TSLA 208.46, down 2.95 (1.40%)
* TSLA volume 1.9M shares
* SCTY 20.05, up 0.26 (1.32%)

 

[dha]

Great writeup as usual Papa. I just want to add that there is no reason to assume it is only TSLA longs who are selling in order to buy SCTY. Now that there are again shares to borrow, I assume there are many traders who are agnostic on TSLA and SCTY and are doing a "pure" arbitrage play by shorting the former and buying the latter. That could be putting some downward pressure on the stock, which will subside as the spread narrows.

 

[Mark Harvey]

View attachment 197602
Nothing has changed regarding the outlook for Tesla the company since Monday, when the stock rallied by nearly $10. All that has changed is that the shorts are trying bold moves to depress the stock price and entice other shorts to join in. Unless the longs will join in the selling, which isn't likely, there's a real limit to how far the shorts can bring the stock down from here. When that point is reached, longs start buying in to load up further for the 3Q ER, shorts take their haircuts, and the stock returns to more rational pricing levels.

Great analysis. IMO nothing major has changed at the company on balance of 4-5 years. Deep analysis requires qualitative look of the company and the position it holds in the industry.

Shorts say: Model X was late therefore Tesla will probably be late with its biggest product launch ever in the Model 3.
Reality: Model X is not required for the company's success. Model X was late because Tesla management decided to delay introduction until the bugs were worked out. In terms of units delivered on the S/X platform, total deliveries have always been close to management's (aggressive) annual guidance. In the case of the delay of the Model X, they simply produced more Model S's to make up for it. Additionally, production issues with the Model X are not transferable to the Model 3 because it does not have falcon wing doors and is more designed for manufacturing.

Shorts say: A huge amount of capital will be required to execute.
Reality: Money well spent. Major investments will solidify the company's competitive strategic advantages. Example 1: The threat of competition will be low until other OEMs invest in gigafactory class manufacturing operations. Example 2: The threat of competition is significantly reduced unless other companies invest in their own fast charging network(comparable to Supercharger). Example 3: The threat of competition will be low until OEMs invest in company-owned stores and control the sales experience. IMO the strategic position that Tesla is making with massive capex is worth much more than that of an investor's share dilution or possible increase in WACC.

Shorts say: The threat of competition is real. Just take a look at the Chevy Bolt!
Reality: Intuitively, analysts tend to define Tesla's competitor set as other battery electric and hybrid vehicles. In reality the competition set is cars(all of them). Chevy introducing the Bolt is no different than them introducing any other vehicle model in terms of impact to sales of Tesla. Additionally, the Bolt EV is an undifferentiated(and overpriced compared to a similar sized gasoline car) product and it is obvious that the car is a compliance car in disguise and the company does not intend to sell them in large numbers. Threat of competition becomes real when Tesla is no longer making a differentiated product compared with its peers.

 

[Papafox]

Well, that Goldman downgrade sure was unpleasant. Here's a look at the good and the bad of it.

The bad:
We're now $7 further away from our individual Post 3Q ER personal targets than we were yesterday. The Goldman note also illuminates the downside of the SCTY merger, which is that it adds the perception of risk to TSLA's near term future. The note also suggests that both the companies that did the major lifting on the last equity raise, Goldman-Sachs, and Morgan-Stanley, are ticked because of the merger announcement following so closely after the equity raise.

The 50DMA and 200DMA which had resided between 215 and 217 are just that much more difficult to reach now, so quick profits are going to be more difficult too. We're going to have to press through the likely SCTY vote later this month to arrive at the catalyst of the 3Q ER.

The good:
The good news is that the Goildman analyst note does not carry much credibility with Wall Street people who are in the know. The chief analyst, David Tamberrino, has one of the lowest success scores of any analyst in the United States. His success rate is 33%, which means that a flip of a coin is a better indicator of what is going to happen and if an investor consistently bet just the opposite of what Mr. Tamberrrino suggests, that investor would make a good deal of money. Check out his record:
https://www.tipranks.com/analysts/david-tamberrino

With such a questionable note from Goldman, the longs who exited today are mostly the weak longs who would likely exit at first sign of trouble, anyway. Replacing them are longs who are more willing to weather the ups and downs of TSLA.

Take a look at the price paid by shorts who entered today. The stock gapped down to about 202, which means that few shorts got in between 208 and 202. Thus, the earning potentials of the shorts who just entered is already compromised. These are the shorts who are most likely to exit at the first sign of good news.

Elon Musk surely does not want to do his next equity raise at this price point. We can pretty much expect him to give attractive guidance at the 3Q ER, and possibly provide positive word about Tesla Energy and the status of the gigafactory at the even later this month. I don't think he will disappoint us.

 

[3Victoria]

Fred Lambert needs to correct his error regarding who the analyst was for this story:
Tesla’s (TSLA) stock is down after Goldman Sachs cuts price target, sees slower Model 3 ramp up

I was expecting this to be done, but perhaps Fred has not seen the story-comments or references in TMC. Can someone email/text him?

 

[GoTslaGo]

Fred Lambert needs to correct his error regarding who the analyst was for this story:
Tesla’s (TSLA) stock is down after Goldman Sachs cuts price target, sees slower Model 3 ramp up

I was expecting this to be done, but perhaps Fred has not seen the story-comments or references in TMC. Can someone email/text him?

I recall he put a comment at the end regarding the analyst. Just no indications of his qualifications or any other details.

Yes it was at the end as an "Update"

 

[3Victoria]

Oops, yes, he added this:
"Update: we are told that David Tamberrino took over the Tesla coverage Goldman Sachs and issued the downgrade. But considering he was on Archambault’s team and that his history of TSLA coverage is fairly recent, it’s probably better to refer to Archambault’s coverage history on TSLA has seen on the chart above."

But that misses the point that while Archambault is rated one of the top analysts, Tamberrino is rated one of the worst, and GS's anaylsis has done a 180 degree flip from bull to bear.

 

[GoTslaGo]

Oops, yes, he added this:
"Update: we are told that David Tamberrino took over the Tesla coverage Goldman Sachs and issued the downgrade. But considering he was on Archambault’s team and that his history of TSLA coverage is fairly recent, it’s probably better to refer to Archambault’s coverage history on TSLA has seen on the chart above."

But that misses the point that while Archambault is rated one of the top analysts, Tamberrino is rated one of the worst, and GS's anaylsis has done a 180 degree flip from bull to bear.

Agree.

FWIW, my understanding is that we have a different analyst who used the same data-set to flip the recommendation. So fundamentally nothing has changed.

We still have record Q3. And new contracts (large) for TE, now 4 I think (previously only 2). Now we just wait for Earnings.

So since the analyst just did a flip flop on the same fundamental data, arguably the conditions are unchanged for us long-term longs. Ergo, the lower price that GS just gave us is a new opportunity to acquire more for less. Personally my buy limit struck and I got a bunch of shares for a lot less than I expected )), and have new powder to get more for cheap.

PS--

Now that Archambault (sp?) is no longer an analyst, I wonder if @DaveT can rope him for a hangout (like Andrea James)?

 

[3Victoria]

Cool idea re hangout. You are right, we longs should send him some Champagne to thank him for the buying opportunity

 

[Papafox]

TSLA lost another $4 today. The trading chart does not at all resemble the broader markets (which closed slightly down) and no negative news of significance came out about Tesla. Instead, we saw the continued fallout from new short-sellers re-establishing positions. Fortunately, I think we're close to the bottom, here's why.

TSLA's number of shares held short will stop increasing not when no more shares are available, but when shorts see that they are unlikely to make money with those positions. Right now, you have people like Jim Chanos who are suggesting that Tesla will go bankrupt, which is absurd when you realize that the core business of Tesla is now profitable and all the company has to do if it gets into trouble is slow down the growth rate. Nonetheless, there are people buying into this argument and short-selling TSLA. If you think about it, the short-selling frenzy is very much like a pyramid game. Those who get in early win (because their "sell" price is high), those who get in late will lose. We've been past the point of winners transitioning to losers for some time now. After the Q3 ER has been held and the new focus of SolarCity has been explained, Tesla's stock will be considerably higher than it is right now and those short-sellers who recently sold in will be quite deeply underwater.

Two developments on Friday suggest that good news will prevail later this month. First, the 3Q ER has been moved up from its traditional early November date to October 26 this year. With pressure on the stock price, moving up bad news makes no sense at all, and so it will of course be good news. Secondly, Electrek.co published an article that details how Powerpak 2.0 will move from 100kwh to 200kwh per device and that since each device will be close to the original size, some of the improvement is quite likely to be the result of a more dense (and likely cost-efficient) chemistry used in the new 2170 cells produced at the gigafactory. Musk sees Tesla as having much to gain with a stock price increase prior to the next equity raise, and so I think he will give great guidance regarding the prospects for Q4. Looking at delivery dates, much of Q4 production is already spoken for, and so demand will not be an issue. In fact, with recent moves to eliminate the 60kwh Model X and require all Model X vehciles to be built with the more-expensive air suspension, GM is sure to increase on X in the 4th quarter. Add in Telsa Energy income in Q4 and we'll see a nice quarter then, too. Tesla is positioning itself to defend the bearish claim that 3Q will be a one-hit wonder.

Of most immediate concern is when the stock price will turn around and start climbing again. Part of the answer is when the short-sellers realize that everyone who has bought in at 202 and below will soon be underwater. This process of reintroducing shares to short has been unkind to TSLA, but once we see a day or two of rising stock price, those selling into new positions will realize that they are in a no-win situation. Once the stock starts climbing from longs buying, they will buy to close, and the march upward to Q3 ER will accelerate. Whereas TSLA lost more than $7 on Thursday, its drop of Frida was only a bit over $4, and the price recovered slightly in the late afternoon: signs that the sell-off is losing steam.

Normally you see a burst of buying on Monday mornings during the first hour as new longs pick up TSLA stock after considering the purchase over the weekend. There's a good chance that at these prices longs may consider doing just that, but there's also a reasonable chance that shorts might try another pre-emptive strike to dissuade the new longs from buying in. Typically, we see a day when the stock teeters between rising and falling before it is followed the next day by trading that is definitely in the new direction (which would be up). Either way, once the stock starts heading up, there's no guarantee it will be a slow move, so if you plan to buy more TSLA after the reversal, watch very carefully this coming week.

Conditions:
Dow down 28 (0.15%)
NASDAQ down 14 (0.27%)
TSLA 196.61, down 4.39 (2.18%)
TSLA volume 3.5M shares
SCTY 18.68, down 0.83 (4.25%)