Tesla: Is The Short Squeeze Leading To A Trump Slump? (Technical Analysis)
Contributor since 2022 / 2832 Followers
Summary:
- Can this meteoric rise in the Tesla share price continue, and will this stock see a slight pause or slump?
- After issuing a buy signal in July of last year at the $250 region, we again look into whether there may be an obstacle on the way to our TSLA $400 target area for this equity.
- Several factors have participated in this extreme move up as we look to dissect their effects going forward.
Tim Robberts
Remarkably, shares in Tesla, Inc. (NASDAQ:TSLA) touched $212 just twenty days ago. Two catalysts have propelled this stock upwards in epic proportions, so epic that in the first twelve days of this month, the EV giant has already surpassed its biggest monthly gain. That was in September 2021 when the share price rose $115 in one 30-day period. This month? $122 as Tesla notched $360 in pre-market trading.
Firstly, Q3 earnings were released in October which saw an EPS 20% upside surprise, with shares opening at circa $250 the following day. As CEO Elon Musk “joined” the Trump ticket, there was another surprise in store for investors as the former president was re-elected, and shares in Tesla saw another considerable boost on the news. A second gap up in ten days, with shares opening circa the $290 region the next day.
So where does the Tesla share price go from here?
Before we go into that, I will include my final notes from an article published with Seeking Alpha in July of last year as we issued a buy signal at $250.
“I am issuing an additional buy signal with a new target of $400 for Tesla. Combined with Elon Musk being allocated his $56 billion pay deal which has appeared to be a positive move, strong figures in this sector in general, and the upcoming robotaxi progress as an addition to the company, I believe Tesla can reach $400 within the next twelve months.”
This thesis has not changed and in fact, the $410 region is technically the next stop for this equity. The concern that has now materialized is essentially that the stock could be looking to double in a very short period. This equity is notorious for returning to its original breakout area, which is $270 in this structure, a long way from where it sits currently.
The Short Selling Issue:
Short sellers in Tesla stock on election day were in for a shock, reportedly a $5.2 billion shock at that.
On November 4th, shares closed circa the $250 region. Since the opening bell the following day, shares have surged remarkably, roughly 45% by touching $360 in pre-market trading on the 12th of November.
So, is this the reason for this rapid meteoric rise, and can we expect a slump to follow?
There will be a few factors for the rise. President-elect Donald Trump has reportedly promised to favor loyalty during the campaign election. Investors will be excited with this idea, although not clear exactly how, as Elon Musk was a regular presence at rallies during the tail end of the campaign. Perhaps relaxed regulations on AI and autonomous driving are on the cards.
The earnings upside will also have the market keen looking into the future, an EPS surprise to the upside after the three previous quarters saw a negative release. Elon Musk announced on the earnings call that he possibly expects 20-30% vehicle growth next year because of lower-cost vehicles. He stated that the company is currently manufacturing 35,000 autonomous vehicles every week and claimed that Tesla would look to manufacture 2 million Cybercabs annually in the future.
Also, this week, Dan Ives from Wedbush Securities raised the price target for Tesla, stating:
“We are raising our price target on Tesla to $400 from $300 as we believe the Trump White House win will be a game changer for the autonomous and AI story for Tesla and Musk over the coming years.”
Short Selling Cover:
Undoubtedly, short sellers of Tesla stock will have contributed to the current move up. Our initial immediate target for this move from $270 was $360. It could be that $360 was reached with all the shorts out of their positions, and now we will see a slump in the stock as it takes a breath.
However, if it doesn’t take this path $410 is on the cards, possibly this month. The coming weeks will tell us more if Tesla wants to retrace to $270 and then make a reattempt at the $400 region. The second scenario as mentioned is that there is a thin pause at $360 and then the stock looks for $410 immediately. In our opinion, either way, this equity will have to pause soon as it cannot keep climbing with the ferocity of the past couple of weeks.
To Finalize:
We expect Tesla, Inc. to achieve $410 within the next 30 to 120 days, when we will be looking for the equity to create an additional path to new highs. Should this materialize, I will return with a follow-up article.
Analyst’s Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
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