MorningWord 2/11/14: $TSLA – Breakin’ Out 2: Electric Boogaloo

by Dan February 11, 2014 9:29 am • Commentary

At its highs of 2013, TSLA’s shares were up 470% year-to-date.  The stock and the story around its high end electric cars and its eclectic founder and CEO Elon Musk neared the closest thing to a full blown stock market mania that I can remember in more than a decade.  On September 30th, the day the stock was to make “the Top” and a subsequent 40% decline in the following two months, I wrote what in hindsight can only be viewed as a hilarious “PSA for T$LA Shorts” (me being one of them at the time), that they might want to Go Test Drive the Model S, You May Decide To Cover*.   Here was an excerpt from that post that reads a lot like me throwing my hands up in the air:

for those short sellers who want to dig in on this one, go Test Drive one, you may feel differently about your positioning if u can separate normal market behavior from reality. Obviously the product, the company’s financial prospects and the stock’s behavior are all inter-related, and it is also obvious that there are massive disconnects btwn those 3 factors at the moment, but one thing is for the certain, the product is AWESOME, in a way that true believers of the .Coms in the late 90s were never able to experience of their beloved stocks.  The main point here, is that who knows where this thing stops going up, the more people who buy this care the more ambassadors there will be for Musk, Model S and possibly the stock.

So here we are just four and one third months later, and the stock has all but made up that 40% mini-crash and now is up 30% and made a new all time high yesterday.  One of the most important takeaways from this exercise is that trying to make money on the short side on a name like this is more of an art than a science.  Oh, and it will take a lot of dumb luck with only a wee bit of skill.  While I had a bearish position on at the time, I was dumbfounded as to the overwhelmingly positive sentiment for the story, and then for a moment, I caught up.  While my test drive did not cause me to cover my short position, I am happy to look back on the experience and try to figure out where I went wrong.  And the only real conclusion I can walkaway with is that it would have been better to be lucky then good.   Just as all news was good news on the way up, at some mysterious point in October, the news flow went from bad to awful, until about mid January when the company announced greater than expected Model S deliveries for Q4.

So now what?  The one year chart below shows the October low, that corresponded almost exactly with the high from May to yesterday’s new high.  The most interesting observation I can make is the converging 50 and 150 day moving averages (purple and yellow lines) at about $156 should serve as massive technical support in the near term.

TSLA 1yur chart from Bloomberg
TSLA 1yur chart from Bloomberg

The company is set to report their Q4 results next Wednesday after the close. The options market is implying a one day move of about 12.5%, which is basically inline with the 4 qtr avg of about 13%.

Tesla’s impressive stock success has been in stark contrast to the start of the other major American car dealers in 2014, GM and F.  In fact, both of those behemoths, with around 200,000 employees each, are only worth about 2x more in market cap than upstart TSLA, which has around 3,000 employees.

As Janet Yellen speaks this morning, highlighting continued underemployment in the U.S. economy, Tesla’s competitive threat to GM and Ford might be a better anecdote that explains the structural issues in the U.S. economy than any fancy macro chart from the Fed.  Doesn’t necessarily make TSLA stock a buy near $200, but the company’s a winner in the most American sense of the word.

* I would also note that as soon as I published the post, Enis and I quickly said to each other “that’s the top!!!” as we wrote at the bottom of the post in an Update.