The short sellers in Tesla Inc. (TSLA) should be very nervous, as shown by the company's shares breaking to a new all-time high today. Tesla has been one the best performers so far in 2017, with the stock up nearly 53 percent through Friday's close, making 2017 a painful year for short sellers betting that shares of founder Elon Musk's electric car company would crash and burn.
You can't understate the carnage for the shorts. There were nearly 32 million shares of Tesla short as of Friday, representing approximately 31 percent of the float.
Things seem like they are about to get even more interesting. The stock closed at an all-time high a few weeks ago and then did so again this morning. The short sellers have made a few attempts over the past few weeks at dragging the stock lower and have been unsuccessful each time.
The first attempt came on April 11, where there were two consecutive days of downward pressure on the stock, with the shares finding support around the $295 level. That was followed by a run-up in shares to a then all-time high of $327.66 on May 2, right ahead of the company's first quarter results on May 3. Tesla's quarterly results were a snoozer. Since that provided no fireworks or unexpected positive events, the buyers seemed to pause and the sellers took the stock down to around the $290, ending trading on May 4 near $295. It seemed like it would present the shorts with a perfect opportunity to push the stock significantly lower. Instead, the shares rallied and climbed back to $327. Unable to get the price of the stock through the previous high, the sellers were able to move Tesla's shares lower to near $305. The price held at that level for few days, on May 24 shares turned sharply higher and closed trading on May 26 around $325, within striking distance of the all-time high.
Three Failed Attacks
The fact that short sellers had three unsuccessful attempts at breaking the stock and sending it lower seems to indicate buyers are numerous and looking to acquire shares. Short sellers are now faced with a pivotal decision: stay short and feel more pain or get out and buy back their short position, which potentially adds more upward pressure.
Interestingly, the stock has seemed to form a reverse head and shoulders pattern, which is a bullish indication that stock could go higher as well.
So it's clear that this is a stock that the shorts can't get control of, and in this case, they simply seem to be vastly outnumbered by the buyers. A stock that does not want to go down has only way left to go, up.
Michael Kramer and the clients of Mott Capital Management, LLC own shares of TSLA.
Michael Kramer is the Founder and Portfolio Manager of Mott Capital Management, LLC, a registered investment adviser. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Upon request, the advisor will provide a list of all recommendation made during the past twelve months. Past performance is not indicative of future performance.