tsla

Tesla Please Don’t Tease The Shorts

Tesla’s (NASDAQ:TSLA) stock dropped from a recent high of $373 to a recent low of $296. After announcing Q2 unit production and delivery results early this week the stock first jumped about 5-6% then dropped like a rock. What caused it and what’s next?

Musk Hype Set Up “Sell The News”

On June 27th Tesla’s CEO Elon Musk teased the shorts on Twitter by tweeting, “They have about three weeks before their short position explodes.”

Any time you hype up a datapoint you invite a ton of short term traders to play the event. Those short term traders are going to sell either way but if they see the stock go down on the news they’re going to sell even faster. Then you have a pile-on, selling begets selling.

Then when the stock started going down investors were looking for all types of negatives to pin to the weak stock action.

Our Advice For CEOs With High Short Interest: Who Cares!?

Who cares?! Really. If you have a lot of shorts on your stock, who cares!?  If you do a good job with your business those shorts are going to be the best thing for the stock helping it jump to the stratosphere.

If the company doesn’t do as well all those shorts give buying pressure as they take profits which helps support the shares as other long-holders exit.

Shorts are not a bad thing. They are a very good thing to support downward pressure.

Really when we have stocks that we want to Buy we love seeing a big short interest. That just means if we’re right, the stock is going to propel higher that much faster.

We had a case recently where Trade Desk (NASDAQ:TTD) had a huge short interest but we loved the fundamentals. Thanks to the shorts that stock shot up 40%+ the day after earnings and it’s still going.

So Mr. Musk, we love you, but really, who cares about the shorts. Do a great job and the rest takes care of itself. Ignore the shorts.

In this case, teasing the shorts ahead of a datapoint worked out against you. There’s no need. Just deliver.

Datapoints Are Nice But Earnings Are What Matters!

We’ve been in this business a while.  I’m not a big fan of trading datapoints. They are not nearly as important as earnings.  Getting a datapoint of their Model 3 progress was good but their comments on earnings were so much more important.

This was music to my ears. In their delivery and production release they said, “We also reaffirm our guidance for positive GAAP net income and cash flow in Q3 and Q4.”

Positive earnings? The Street’s at a loss for the next few quarters.

If Musk didn’t hype his stock ahead of this datapoint this stock could have been much higher after its release.

And did anybody do the math what a profit in the back half of this year would mean for EPS for 2019? We get $14 in EPS for 2019 in our model.  The Street’s expecting $2.71 for 2019. Hedge funds and large investors have to know that a profit in the back half should mean big things for this stock.

We’re bullish.

Conclusion

There is absolutely no reason to tease the shorts and tell everybody what a datapoint is going to be before the print. It messes up how the reaction will be to good news. Musk and Tesla did a great job meeting their targets and we’re bulls but he shot himself in the foot by hyping the stock ahead of a datapoint. Hopefully he and other CEOs learn from it. Just deliver.

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All investments have many risks and can lose principal in the short and long term. The information provided is for information purposes only and can be wrong. By reading this you agree, understand and accept that you take upon yourself all responsibility for all of your investment decisions and to do your own work and hold Elazar Advisors, LLC, and their related parties harmless. We have no holdings in the stocks mentioned unless otherwise noted.

Tesla: No Idea How Shorts Stay Short

Tesla told you they are gunning for a profit in Q3 and Q4, which would be huge. Tesla just told you that their key metric, weekly production of Model 3s is on target. If you’re short, how in your right mind do you say ‘la di da, no biggie, it’s going down.’

That makes no sense. These shorts are going to get smoked.

Reminds Me Of Some Other Shorts

Ahead of earnings we said that Trade Desk and AMD shorts were in trouble because of expected good news. Both stocks were rocket ships.

Trade Desk is up 60% since earnings on May 10th and AMD is up 54% since earnings April 25th. I wish we could annualize that, right?

Short interest was high going into both Trade Desk and AMD earnings and, sure enough, good news smoked the shorts.

Tesla’s Percent Of Float Short

Trade Desk had about 33% of their float short and AMD had 22% of its float short.

Tesla has 31% of its float short and the short interest has been moving up.

I Don’t Understand How You Stay Short?

Tesla tells you they plan for a profit in the back half. They are quickly firing people, cutting costs and running to get to profitability.

Then they tell you their key metric, 5,000 Model 3s produced-per-week, is on track.

If I was a short (which I’m not and frankly I don’t want to be short because it leads to a depressing outlook on life hoping the world blows up before trading tomorrow plus markets go up over time plus shorts are crowded thanks to hedge funds having to be ‘hedged,’ whoops, got side tracked)… If I was short (which I’m not and ….) I have to acknowledge some incredibly huge management comments in my face. Then if I was short (which I’m not and…) and I saw the stock ticking higher and higher I have to cover and push that stock up even more.

That’s how a short squeeze works.  Shorts need to respect the data that’s out there. But I think shorts cemented their shoes into this one.

I think that’s how AMD and Trade Desk jumped so much on great news; lazy shorts and lots of them.

Conclusion

We’d expect shorts to blink sometime before we get to earnings in late July or early August which would mean higher stock prices sometime soon.

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Reading Comprehension
I don’t love shorting because
A) Hollywood is rallying against shorting
B) The EU’s new regulation GDPR doesn’t allow shorting in Google or Facebook
C) June is officially “I don’t want to short month”
D) It’s crowded and generally depressing
Answers in comments, please.

All investments have many risks and can lose principal in the short and long term. The information provided is for information purposes only and can be wrong. By reading this you agree, understand and accept that you take upon yourself all responsibility for all of your investment decisions and to do your own work and hold Elazar Advisors, LLC, and their related parties harmless. Model portfolio trades and positions are hypothetical to be used for directional analysis and ratings purposes. Elazar and its employees do not take individual stock positions to avoid front running and other potential customer related issues.

We are long TSLA for a customer.