TSLA chart above
QQQ chart above
Tough week, my friends. I know what you're asking yourself, "where is the bottom?" Let's look at that question after considering Friday's movements.
On Friday, QQQ started off down about 1/2 a percent and then recovered so that it was flirting with green by 3:00pm. TSLA, OTOH, continued downward until noon, recovered somewhat, but was pushed back down to 215 and remained capped near 215 for most of the rest of market trading. Meanwhile, QQQ was climbing. Notice how linear the TSLA ups and downs were from noon to 1pm. I somethings think that the linear ups and downs are an indication that someone is "managing" the rate of climb or descent (feel free to use the word "manipulating" here). You would expect to see an increase in percent of TSLA selling by shorts when the capping is so apparent and more than 5 million shares traded during the 4pm closing cross, but instead we saw breathtakingly low percent of TSLA selling by shorts at slightly less than 40%. The most reasonable conclusion was that the shorting entities were borrowing from dark pools to keep their substantial activity hidden.
The positive of the day was that TSLA recovered almost all the day's market hours losses in after-hours trading. Another interesting development on Friday is that we finally saw TSLA rise to normal volume. As the pushdown ends we will see capitulation with some of the hedge funds starting to buy. Volume increases at such a time, which may be directly related to the capitulation.
One of my rules of thumb is that when we start to see manipulations foiled, it's a sign that we may be nearing the bottom. I wouldn't call a successful capping operation a fail, but it's an indication to me that it's getting harder for the pirates to keep this stock heading downward. One complication of using rules from the past is that much of what we're seeing this time is macro-induced, and TSLA might not recover until the macros are done settling.
So, why do we see such deep dips with TSLA? Part of the reason is because we see such strong climbs as well, such as the climb leading into the Q2 ER. Another reason is that valuing TSLA is difficult because there's no strong agreement on what TSLA profits and growth will be going forward. Wall Street consistently models way too little growth for TSLA beyond a year or two, and Elon's willingness to cut vehicle prices to move inventory results in fears that margins will degrade substantially. When the dire predictions don't come true, the stock runs uphill quickly. Such is life as a TSLA investor.
Consider the following players and how they interact with TSLA trading in a run downhill:
Market makers
This particular band of pirates is not shy to use shorting or naked shorting to keep TSLA below their desired maximum price on Fridays, but we typically don't see nearly this same level of involvement when TSLA is heading down and has passed below Max Pain. Part of the answer could be that shorting and naked shorting create artificial shares which can keep buyers from bidding up the price, but buying shares is not as effective at price control. Market makers benefit when investors get option called, because it forces selling at a price at which most investors would be unwilling to part with those shares. Market makers benefit in their options selling from lots of volatility (which leads to more options trading) if the volatility can be paired with only moderate longer-term price changes. Think about this for a second: the long-term trajectory of TSLA is upward. A bias toward downward swings helps to decrease the longer-term options payouts. The more longer-term options that expire out of the money, the better it is for the market makers.
Hedge funds
Hedgies will play with the stock price for maximum profit. If they're planning a pushdown, there's nothing preventing them from using put purchases to supplement the downward effect of their shorting. When you are a major factor in the trajectory of TSLA, you are in a position to reverse course and go long before the rest of the market has realized that the manipulation influence has changed.
Shorts
Despite the relatively low level of shorting in TSLA compared to the olden days, there are shorts with big fortunes involved. If Bill Gates is still holding his enormous short position in TSLA, he's likely looking for his exit opportunity. The Fed is finished or nearly finished with rate increases, the economy is still percolating along, and big things are coming at Tesla including major expansion of Tesla Energy profits, Project Highland turning the Model 3 into a desired cash machine once again, and Cybertruck deliveries beginning. A deep dip such as we're seeing now presents such big shorts with an opportunity to get out of TSLA with a profit. The key to making a profit is to cover before the stock recovers too much, and so once TSLA starts to recover you might see a rush to buy as the various tribes of pirates are trying to do their buying before the other pirates and before legitimate investors.
Big Institutional Investors
These big dogs are often happy to see the dips because it gives them a desirable entry point for loading up on TSLA for a quick profit over a quarter. They're short-term focused, for the most part, and want to see the bottom in many cases before jumping back in. They're more opportunists than instigators. A lot of these investors are sitting on above average levels of cash, looking for opportunities.
And so, if you consider the motivations of the various players, once the bottom is in, the situation can turn around mighty fast. Watch for volume increases, watch for failed manipulations, watch for positive TSLA news, and keep a finger on the pulse of the macros.
News:
*
Electrek says that Tesla Megapacks are sold out until 2025
*
Electrek also says that Honda has decided to adopt Tesla's NACS charging adapters
Percent of TSLA selling tagged to shorts fell to 40% on a day with 5.1 million shares trading hands in the 4pm closing cross. For context, I can't remember the last time I saw percent of selling number so low, and it happened on a day with strong apparent capping. Translation: someone very likely was shorting the "sugar" out of TSLA on Friday and doing the borrowing from dark pools, which is why the percent of selling number was so low.
Yields on 10 year treasury bonds closed on Friday at 4.25%, little changed from the previous day.
Max pain Friday morning fell all the way to 227.50. What's interesting is that the calls are substantially outnumbering the puts right now, and if the stock price started marching higher the delta hedge buying would have been substantial. Strike 225 was call-dominated and the market makers wouldn't want to see a Friday rally taking TSLA above 225.
Friday's options volumes
The past three weeks have indeed been a downer for TSLA, with the pace accelerating during the past week. Look at how quickly the options market (expressed as max pain) adjusted to the falling stock price this past week, resulting in the max pain number falling nearly as fast as the stock price. Such readjustment of max pain keeps the dip from being too painful to the market makers, who are probably working hard to keep as delta-neutral as possible as the stock price heads lower.
For this coming Friday, max pain is 235, but the open interest so far is fairly low. OTOH, look at the big put spike at 95-97.50. This isn't speculators worried about the stock price reaching this low in the coming week. Instead, it is call option holders who are heavily margined adding these inexpensive puts in order to avoid margin calls.
The dip this past week has been so steep that the lower bollinger band is playing catch-up and is no use as support.
Conditions:
* Dow up 26 (0.08%)
* NASDAQ down 26 (0.20%)
* SPY up 0 (0.05%)
* TSLA down 3.73 (1.70%)
* TSLA volume 136.3M shares
* Oil 82.00
* IV 47.1, 14%
* Max Pain 227.50 for Aug18, 235 for Aug25
* Percent of TSLA selling tagged to shorts: 40%
* Volume at 4pm closing cross: 5.1M shares
