Short-Term TSLA Price Movements - 2016

[jesselivenomore]

We haven't even climbed up *as fast as* we fell down. the last time we closed above 200 it was 13 trading days to the bottom. It has been 16 trading days from that bottom to return and close above 200 again. If there was to be a squeeze you would see a departure from the speed of the ups and downs, this is simply a recovery from a dramatically oversold stock that lost 50% of its value in a matter of 2-2.5 months. We will be lucky to return back to those levels in the same time span (and with the macro market holding out positive for now, and the Model X reviews and deliveries finally happening in large enough quantities to matter, this might actually be possible).

From the 240+ close it was 27 trading days, let's see if we can get back to 240 in the next 11 trading days. My guess? If we continue to go at the 23% slower rising pace of what it took to fall, the return to 240 won't happen until 33 trading days from the bottom, which means that we have another 17 days left to get back to 240 which puts it around Mar 29th. That actually makes sense given that we will be building up to the Model 3 reveal and would not be surprised to see us right around 240 just before that happens.

Really good stuff. In essence you are measuring momentum by counting days. If the rally mirrors the decline - it is the definition of a V-bottom. This is what led me to change my stance from buying dips to buying rally(above 220 on heavy volume). Because a completion of the V-bottom(as we keep climbing higher) would be bullish, where a failure of the V-bottom would be bearish(if we go back below 180 I am not buying). Obviously investors would/should play it differently than me.

 

[aznt1217]

Hey. I realized today that I often drop in to say when I'm buying but often don't let the group know when I'm taking profits. Today I'm unwinding a lot of the calls that I accumulated starting with this post and all the way down to the lows shortly after. It's been a very good year so far for me, and if there is one thing the market has taught me, it is to not convert trades into investments because things happen to be going well right now.

I intend to be completely out of those calls by the time Model 3 is announced (though I reserve the right to buy a lottery ticket or two for that event). I mention this because I want to make it clear that the reason I've been able to take advantage of TSLA's periodic plunges is because I raise cash at times like this. It isn't because I have some bottomless hoard of cash that I can keep throwing on the fire. If you want to partake in the next sale, you might want to take some chips off the table now-ish (excuse the mixed metaphor).

Of course, your situation is different, so make your own investment decisions.

BTW, my core position remains untouched as it has been since the IPO. Still very much a bull.

Boy do I miss your posts lol

 

[jhm]

Why are people so obsessed with a short squeeze? To me, it really does not matter. I'd be happy to see longs accumulate their positions. It's the voluntary buyer that matters, not short seller who panics. Why should ordinary investors buy this stock today at these prices?

Sometimes I think the obsession with shorts is just a psychological defense mechanism to avoid asking questions that leave the long psyche more vulnerable. Who is buying, and why? These questions expose our doubts, but fantasizing shorts in a panic is a wonderful escape.

Indeed, there are many good reasons for investors to buy today.

 

[Causalien]

That gap close is beautiful.

The recovery is following technicals very well. The futire looks bright.

 

[jesselivenomore]

When the ABL was described on the CC, I wasn't too happy about them rephrasing 'free cash flow' to whatever term TSLA wanted to make up. But thinking about it more, it seems to make sound business sense, and as an investor doesn't sound too shady. Anyone want to add a little more color to this?

It may not be shady(simply a new CFO who thinks a new metric is more representative of the business), but they still knew about the ABL when they gave out guidance in past quarters. So they will still have to hit the original guidance without moving the goalpost to satisfy the market.

 

[TSLAopt]

Why are people so obsessed with a short squeeze? To me, it really does not matter. I'd be happy to see longs accumulate their positions. It's the voluntary buyer that matters, not short seller who panics. Why should ordinary investors buy this stock today at these prices?

Sometimes I think the obsession with shorts is just a psychological defense mechanism to avoid asking questions that leave the long psyche more vulnerable. Who is buying, and why? These questions expose our doubts, but fantasizing shorts in a panic is a wonderful escape.

Indeed, there are many good reasons for investors to buy today.

People are free to keep their head in the sand when it comes to shorts and how shorts effect the stocks that are part of our investment or trading decisions.
In 99% of stocks I agree that shorts or potential for 'short squeezes' do not play a very significant role in my decisions. However, in a polarizing stock like TSLA there are huge opportunities with regards to its short situation. If one does not want to see or comprehend those opportunities then they are free to keep their head in the sand on that topic just as I do when it comes to 'technicals'. But there are a number of people on here fascinated by how the TSLA 'short interest' plays out, I admit I do have fantasies about it. I'd own shares even if there were no shorts, but I own options because there are so many shorts.

 

[BobSk]

Why are people so obsessed with a short squeeze? To me, it really does not matter. I'd be happy to see longs accumulate their positions. It's the voluntary buyer that matters, not short seller who panics. Why should ordinary investors buy this stock today at these prices?

Sometimes I think the obsession with shorts is just a psychological defense mechanism to avoid asking questions that leave the long psyche more vulnerable. Who is buying, and why? These questions expose our doubts, but fantasizing shorts in a panic is a wonderful escape.

Indeed, there are many good reasons for investors to buy today.

I agree, I think we are unlikely to get a another short squeeze like 2013. First, a lot of people are prepared for a short squeeze, that would greatly reduce the chance to happen, and reduce the magnitude if it does happen. Second, Tesla is now 8 times larger than in 2012. If it does jump a lot, it's easy for new shorts to counter the move. Third, Tesla will not make huge profit anytime soon to support a big squeeze. However, simple buy and hold longterm investment should bring huge gain in the long run. For traders, there are a few good entry points on the way up.

 

[Curt Renz]

Remember to add the shares short to the remaining share. Other shareholders own 15 + 31 = 46 million shares long.

People always seem to overlook that when a short sells a share that creates a second long position on a single share. Shorts expand the supply of long positions in a stock.

Sorry, but that is not the case. No new shares are created by selling short. Only the corporation involved can create new shares, and that's a complicated process.

Through a broker, a short seller borrows shares from a shareholder and immediately sells them to somebody. Unless the new buyer has the same broker as the lending shareholder, the shares involved are no longer being held by the lending shareholder's broker, just an IOU. Even if they have a broker in common, the number of involved shares held by the broker is not doubled.

If the lending shareholder wants to sell, the broker must return the required number of shares to him, even if that means forcing the short seller to buy shares in the open market and return them to the broker for delivery to the lending shareholder. That is the original definition of a short squeeze.

EDIT: Sorry again, jhm. I misinterpreted your comment. A retraction and explanation is given below in post #7131.

 

[Zhelko Dimic]

Sorry, but that is not the case. No new shares are created by selling short. Only the corporation involved can create new shares, and that's a complicated process.

Through a broker, a short seller borrows shares from a shareholder and immediately sells them to somebody. Unless the new buyer has the same broker as the lending shareholder, the shares involved are no longer being held by the lending shareholder's broker, just an IOU. Even if they have a broker in common, the number of involved shares held by the broker is not doubled.

If the lending shareholder wants to sell, the broker must return the required number of shares to him, even if that means forcing the short seller to buy shares in the open market and return them to the broker for delivery to the lending shareholder. That is the original definition of a short squeeze.

I hear your explanation and it's technically correct. Yet, spirit of what jhm say is right. Where there was one share, after it's sold short, there are now 2 long holder and 1 short holder, so math is satisfied, and 46M of shares are owned by retail clients.

If tomorrow all shorts had to return shares, they'd have to bid up prices until 31M of longs sell, so there are only 15M holding

 

[The Blue Owl]

Sorry, but that is not the case. No new shares are created by selling short. Only the corporation involved can create new shares, and that's a complicated process.

Through a broker, a short seller borrows shares from a shareholder and immediately sells them to somebody. Unless the new buyer has the same broker as the lending shareholder, the shares involved are no longer being held by the lending shareholder's broker, just an IOU. Even if they have a broker in common, the number of involved shares held by the broker is not doubled.

If the lending shareholder wants to sell, the broker must return the required number of shares to him, even if that means forcing the short seller to buy shares in the open market and return them to the broker for delivery to the lending shareholder. That is the original definition of a short squeeze.

You're right that the short seller doesn't create new shares, in the sense that the number of shares outstanding doesn't change. However, the "effective" number of shares does increase, similarly to how the money supply increases when a bank takes money deposited by David and lends it to Larry. What happens in a short squeeze is pretty much the same thing that happens during a bank run. The shares that were "newly created" by short selling must be quickly converted into "hard currency" (i.e., "real" outstanding shares) at a rate that reflects the "capitalization ratio" (i.e., the inverse of the short ratio in that particular stock).

 

[dreamingof3]

Sorry, but that is not the case. No new shares are created by selling short. Only the corporation involved can create new shares, and that's a complicated process.

Through a broker, a short seller borrows shares from a shareholder and immediately sells them to somebody. Unless the new buyer has the same broker as the lending shareholder, the shares involved are no longer being held by the lending shareholder's broker, just an IOU. Even if they have a broker in common, the number of involved shares held by the broker is not doubled.

If the lending shareholder wants to sell, the broker must return the required number of shares to him, even if that means forcing the short seller to buy shares in the open market and return them to the broker for delivery to the lending shareholder. That is the original definition of a short squeeze.

Curt you are misunderstanding what he is saying. Here is an example to prove his point

"Joe B" owns 1000 shares of Tesla

"Short E" borrows Joe B's shares and sells them at the market to..........

"Beth J" who buys the shares that "Short E" sells at the market.

What is the net result? We have 2,000 shares long for every 1,000 shares sold short

This results in every short position adding to the total shares held long but no affect on shares outstanding

 

[hobbes]

Why do so many people assume a short squeeze is a black or white event?

Agree that shorts selling and buying back is part of every trading day, thus influencing stock price. But doesn´t make sense to me to call that a short squeeze, because: why give it a name if it is always happening?

From what I understand a short squeeze means that price starts rising so much that significant numbers of shorts start covering, leading to a even higher stock price, leading to margin calls, and so on. Unlike longs with a dropping share price can always stay in the game if they dare, margin calls force shorts out. Also, in such a case price movement would be dominated by shorts covering. Someone correct me if I am wrong here.

 

[Curt Renz]

Curt you are misunderstanding what he is saying. Here is an example to prove his point

Thank you Zhelko, Familial and Dream. I did indeed misunderstand what jhm was trying to say. At first I assumed he meant that the number of outstanding shares has increased after a short sale. On closer examination of his words I realize that he was actually trying to say that the total number of shares that shareholders believe they own has increased. That is the case. Sorry jhm.

 

[Zhelko Dimic]

So, here is something interesting. Model 3 is going to be least expensive car with auto-pilot.

That's important for two reasons.

1.BMW 3 Series, Merc C series and Audi A4 can't compete. This is such differentiator that I see people buying Tesla just because of it.

2. It attacks profits of luxury car makers where best toys and new technology are reserved for flagships. This policy of delaying progress helps BMWs of this world upconvert customers that were on the fence (for example) btw. 5 Series and 7 Series. It also lets them charge disproportionately for toys in more expoensive cars, buyers are just used to it. Tesla's policy will attack regular car manufacturers and destroying source of their most profitable options. I've looked it up, and set of advanced driving components that are part of tesla auto-pilot, but not equal to it would cost me on German manufacturer around 10K (line change assist, radar cruise control, ...). For sure Tesla is still too small to move too many customers, but few % matter in the car industry. I can see also some 5 Series buyers down-convert to Model 3 just for autopilot.

No really, Tesla is hitting where it hurts. Probably intentionally, to wake up other car manufacturers, and force transition to EVs. Here is their list so far:
1. Model S - top end of luxury market is segment with highest gross margins, which is the reasons that Germans woke up to danger first.
2. Model X - luxury SUV, check, another cash cow under attack.
3. Model 3, near luxury car is a cash cow with smaller gross margins, but bigger volumes, check.
4. Truck? I get they'd need better technology for that, but they're likely to be busy with Model 3 until 2020, and battery improvements may make truck an option by that point

 

[austinEV]

Why are people so obsessed with a short squeeze?

I feel like we are slaying some strawmen with these this-is-not-a-squeeze analyses (which I agree with). I don't recall anyone firmly proposing we are in a short squeeze, Just TSLAOpt pointing out that we may not know until after the fact.

Good analyses and I look forward to when we all agree a squeeze is happening!

 

[Zhelko Dimic]

Oh, and BTW, when looking at SP through ichimoku lens, we've gotten 3 bullish signals on TSLA so far.
Comparing position of TSLA SP and position of the cloud, it seems almost certain we'll slice through it (unless price falls quickly). Crossing cloud is very bullish, and very hard to do, but due to cloud shape, TSLA just needs to hold price to get through. Now, with THAT, we're truly in the game.

 

[austinEV]

So, here is something interesting. Model 3 is going to be least expensive car with auto-pilot.

That's important for two reasons.

1.BMW 3 Series, Merc C series and Audi A4 can't compete. This is such differentiator that I see people buying Tesla just because of it.

2. It attacks profits of luxury car makers where best toys and new technology are reserved for flagships.....

You know, one thing that concerns me is the lack of differentiation in the future Tesla product lineup. Why exactly would someone buy the model S? Assuming the 3 has similar range, seats 5, is as nice looking, has AP features... In the end the S is larger and can have jumper seats... If they do make the 3 as well featured as everyone is speculating, I hope they do a model S refresh to push it up the value chain. Highest range, more luxurious interior, updated styling etc.

 

[Johan]

Oh, and BTW, when looking at SP through ichimoku lens, we've gotten 3 bullish signals on TSLA so far.
Comparing position of TSLA SP and position of the cloud, it seems almost certain we'll slice through it (unless price falls quickly). Crossing cloud is very bullish, and very hard to do, but due to cloud shape, TSLA just needs to hold price to get through. Now, with THAT, we're truly in the game.

View attachment 114113

It doesn't look very good there where TSLA crossed to cloud (up) in early January 2016, fell like a rock straight after that. Explain again why it's a bullish sign when the stock price intersects the Ichimoku cloud?

 

[jhm]

Thank you Zhelko, Familial and Dream. I did indeed misunderstand what jhm was trying to say. At first I assumed he meant that the number of outstanding shares has increased after a short sale. On closer examination of his words I realize that he was actually trying to say that the total number of shares that shareholders believe they own has increased. That is the case. Sorry jhm.

No worries. I'm just glad to see the issue get hashed out. I do think it helps us undestand how shorts are able to dilute the shareholder base and what happens when when the supply of long position shrinks when short interest declines.

To take the discussion further, an analogy here is how fractional reserve banking expands the money supply with lending. It does no increase the supply of physical gold (to go back to the early days of banking), but it does increase the claims on gold circulating in the economy, i.e. money supply. Fractional reserve banking can get into trouble when to many depositors demand there deposit, and in the extreme this is a bank run. So brokerage houses can also get into trouble when too many shareholders need their shares, but these have been lent out to shorts. This is why brokerages need to charge high fees for borrowing shares when they are hard to borrow. The broker is risking having to buy shares on the open market to satify obligations to clients who have in effect deposited shares with them. The broker needs to charge a high enough rate to mitigate this risk, or at least to be properly compensated for bearing the risk. If you sell in the midst of a short squeeze, and you broker has lent out your share, your broker may well be obligated to buy on the market the shares needed to execute your transaction. This is like a banker who has lent out you deposit of gold. If there is not enough gold in the bank's reserve, the bank is obligated to obtain gold from another holder of gold potentially at great cost. If the bank cannot do this, a run on the bank can ruin the bank. Brokers will push as much of this risk onto shorts as possible through fees and margin calls. Either way, a true short squeeze is a crisis event precipitated through the extension of credit. The only way to dial back in the extention of credit to pay prices high enough to persuade longs to surrender their claims to shares. There are more claims to shares than there are actual shares, so some longs will have to be bought off with cash very quickly. This is why the price can jump to unsustainable heights as the supply of shares rapidly shrinks back toward the shares outstanding. This is my understanding of a short squeeze.

 

[Johan]

No worries. I'm just glad to see the issue get hashed out. I do think it helps us undestand how shorts are able to dilute the shareholder base and what happens when when the supply of long position shrinks when short interest declines.

To take the discussion further, an analogy here is how fractional reserve banking expands the money supply with lending. It does no increase the supply of physical gold (to go back to the early days of banking), but it does increase the claims on gold circulating in the economy, i.e. money supply. Fractional reserve banking can get into trouble when to many depositors demand there deposit, and in the extreme this is a bank run. So brokerage houses can also get into trouble when too many shareholders need their shares, but these have been lent out to shorts. This is why brokerages need to charge high fees for borrowing shares when they are hard to borrow. The broker is risking having to buy shares on the open market to satify obligations to clients who have in effect deposited shares with them. The broker needs to charge a high enough rate to mitigate this risk, or at least to be properly compensated for bearing the risk. If you sell in the midst of a short squeeze, and you broker has lent out your share, your broker may well be obligated to buy on the market the shares needed to execute your transaction. This is like a banker who has lent out you deposit of gold. If there is not enough gold in the bank's reserve, the bank is obligated to obtain gold from another holder of gold potentially at great cost. If the bank cannot do this, a run on the bank can ruin the bank. Brokers will push as much of this risk onto shorts as possible through fees and margin calls. Either way, a true short squeeze is a crisis event precipitated through the extension of credit. The only way to dial back in the extention of credit to pay prices high enough to persuade longs to surrender their claims to shares. There are more claims to shares than there are actual shares, so some longs will have to be bought off with cash very quickly. This is why the price can jump to unsustainable heights as the supply of shares rapidly shrinks back toward the shares outstanding. This is my understanding of a short squeeze.

SEC rule 204 should, at least if upheld, assure that this actually takes place (as opposed to "indefinate naked shorting" which may have been the typical thing to do in the past).