After eight consecutive victories,
shares are down. There’s no smoking gun to blame for Friday’s drop. Stocks just hit $200 too soon, propelled by everything from stock chart patterns to options traders to rising investor expectations gearing up for a big event.
the stock fell 5.8% on Friday, while the
has changed little and the
is down 0.8%.
It’s a big drop, but the gains have been something to behold. Going into Friday trading,
(ticker: TSLA) shares are up for eight consecutive days and 14 of the last 15. The shares are up 24% over eight days and 63% over 15 days.
At one point Thursday, Tesla shares soared 110% from a 52-week low of $101.81 set on Jan. 6, soon after Tesla announced price cuts in China, followed by price cuts in the U.S. around one week later.
Earnings are welcomed by bulls, but Wall Street can get nervous about too much of a good thing. On Thursday evening, Morgan Stanley analyst Adam Jonas suggested that Tesla shares doubled in about 24 trading days was “too much, too soon.”
He pointed to the high trading volume as evidence that things were stretching. Tesla shares traded about $800 billion worth of shares in early 2023. That’s about 50% higher than it traded in the same number of days before the close of 2022.
Equity trading isn’t the only area where volumes have increased. Tesla stock options trading is getting more and more bullish. The average five-day volume for Tesla’s call options is about 2 million contracts, according to data from Bloomberg. The 20-day average is 1.8 million contracts, indicating that more options have been traded recently.
Calls are a bullish bet that a stock will go up. They give the holder the right to buy a share at a fixed price in the future. The value of a call option increases as stock prices rise. Put options do the opposite. They give the holder the right to sell a share for a fixed price.
More call options on Tesla stock were traded than put options, another sign that investor sentiment was improving. The put-call ratio was around 1.3 a few weeks ago. It’s now closer to 1.5x, according to Bloomberg data.
All data points are a warning that Tesla’s rally may peter out. Mark’s technicians also pointed out that Tesla stock was expected to take a break, encountering resistance at around $200 per share.
Technical analysts don’t care about fundamentals, they look to chart patterns to get an idea of investor sentiment and when it might change.
Jonas got a glimpse of what could change sentiment, wondering in his report whether the January inflation number, due out on Valentine’s Day, will send the stock tumbling.
Faster-than-expected inflation hits high-growth, high-valuation stocks harder than others. Higher inflation means investors will expect higher interest rates, and higher rates make it difficult to finance growth and also tend to push equity market valuations down, hurting higher value stocks more.
Tesla is now trading at around 51 times its estimated 2023 earnings. The S&P 500 is trading at around 18 times earnings.
In the long run, CPI numbers and options contracts are an afterthought. Earnings, growth and market share will determine where Tesla stock goes.
Jonas is seeking details on the future at the company’s March 1 investor event in Texas. “We are excited to see the manufacturing advancements including giga-press…4680 battery pack, structural pack and other innovations,” she writes.
Jonas looks cautious, but rates Buy stock. His price target is $220 per share.
Overall, about 65% of analysts covering Tesla stock buy shares. The average buy rating ratio for S&P 500 stocks is approximately 58%. The analyst’s average price target is around $194.
Email Al Root at [email protected]