$TSLA past, present, and future

A study of TSLA stock

This post is a discussion of TSLA 0.00%↑ stock, whose recent lackluster performance was a hot topic in the stock market. I have absolutely no interest nor the expertise in discussing TESLA the company and how its technologies could help shape human history in the future.

The Big Picture

Below is a chart of TSLA 0.00%↑ since it went public in 2010. You can see clearly that it has had two big up thrust moves in its entire history. As stock speculators/traders/investors seeking to achieve superperformance, you would want to get involved at just the right time to participate in those up moves and sit out while it's basing because the basing period can be quite long and holding the stock while it’s chopping is a complete waste of time. In other words, holding the stock while it’s in big, long consolidation period has its opportunity cost, even if the stock doesn’t go down.

How you could’ve played TSLA perfectly?

Hindsight is 20-20 but TSLA 0.00%↑ is such a classic study case that I think would be useful to spend some time to study and learn from. If you imagine you were a long-term retail investors, how could you have timed your trade perfectly?

The first big run started in April 2013 after about three years of base building and lasted about a year. Notice that during most rapid rising phase, between April and September 2013, it’s difficult to chase the stock as momentum kept it safely above the shorter-term 10w ema the entire time. Early April 2013 was the optimal buy point because the stock would have worked almost immediately for buyers. After about an 8-fold rise, the stock touched the 3.618 fib level in Feb 2014, and almost made it to the 3.618 fib again in September 2014. Those two would have been the perfect exit points because you can see that the rate of ascend was slowing down and in September 2014 the stock was able to make a newer high in price but failed to touch the 3.618 fib level and that tells me the upthrust momentum had really dissipated and it was time to get out with a great profit and look for opportunity elsewhere.

The Second Big Run(2019-2021)

It turned out that the stock didn’t really crash despite an “unrealistic” valuation and instead it went into a big, long consolidation period for about 5-6 years. In October 2019 after its earnings report, it had a one day jump of 30+% and more importantly, it had a relatively mild sideways consolidation for 5-6 weeks afterwards and started to hold firm above the 10w, 20w, and 30w emas once again; the behavior change was a strong signal that another big run was brewing and the small consolidation period in October/November 2019 turned out to be the optimal entry point. The second big run in TSLA’s history ensued as the stock went on a robust run of about 200% until February 2020 all while staying above 10w ema the entire 2 month period. The stock then had a sharp pull back of 64% along with the market during the COVID meltdown in March 2021. Despite the temporary sharp pullback, it was one of the strongest stocks in the market as it was one of the first stocks sharply bounce back to break to new all-time highs in early May 2020 after the deep correction to continue where it left off. It eventually touched the 3.618 fib level in November 2021 after rising about 20 folds. It topped around the same time the Nasdaq topped and when Elon Musk first polled Twitter whether he should sell some of his stocks to pay the tax bills. Elon Musk's market timing was impeccable.

Elon Musk’s long-term performance stock options grants

Many people like to find attributes/reasons/justifications for a stock’s sudden meteoric rises like the two big runs that we just discussed in TSLA 0.00%↑ . In TSLA's case, most people would talk about how its AI technologies are generations better than competitors and how it's the pioneer in the EV industry whose production capability takes years for competitors to catch up. If you read my previous articles, you would know that I pay no attention to such fundamental details. Most retail investors would pay no attention to these details when the stock was basing at a low level but would suddenly champion these advantages as they FOMO in AFTER the stock has just had its parabolic run and happily hold the bag for a long time. If you really wanted to find attributes and catalysts for the two big runs in TSLA stock, I would suggest you to study the two long-term performance stock options grants that TSLA shareholders awarded Elon Musk in August 2012 and January 2018 because they told you exactly what the stock was going to do. I don’t want to speak too much publicly about why these options grants were such big catalysts for TSLA’s stock prices because I could get into some serious trouble but if you think deeply about the signals they send to the bullish investors and how the plans change the supply and demand of the stock, you would understand the significance of these grants. The approval of these long-term performance plans was the most significant piece of news about TSLA stock that most retail investors missed while they focus on Tesla’s monthly delivery numbers.

How I traded TSLA

I don’t trade TSLA 0.00%↑ stock often because TSLA options are super expensive so it's difficult to earn money from trading its options by my strategy but I was fortunate to get involved at an opportune moment to have gotten some profits from the trade.

In May/June 2019, TSLA had a scary moment as the stock suddenly dropped 40+% over a 2 month period and Wall Street analysts suddenly came out in droves downgrading the stock. Some even said that TSLA could crash to $10 in worst case scenario. I smelt opportunity as sentiment in the stock was objectively negatively at that moment and analysts downgrading the stock and mentioning scary targets is usually a good contrarian indicator. But I really had no idea how far down the stock could go and I didn’t really start to study the TSLA chart like I have been in the past 2 years so I had no idea how high the stock could go. What I decided to do was to hold my nose and bought a 01/2020 expiration $400 call, a 01/2020 expiration 350-380 call debit spread, and a 06/2020 expiration 450-550 call debit spread, each for about $1 and change for a total of about just over $500. That was my YOLO dim sum bet. The bet started to pay off with the big jump in TSLA stock in October 2019 after its earnings report. Unfortunately, I didn’t really have a good system to play these kind of moves and cashed out my 01/20 $400 call and my 01/2020 350-380 call debit spread for 300-500% gains because it didn’t seem the stock wanted to move and expiration was just a short time away so I didn’t want them to turn from a winner to loser bets. If I had the technical analysis knowledge that I have now, I would have recognized that the stock was about to go on an explosive run and held these bets to maturity, 2 months later. The 01/20 expiration $400 would have become a 150 fold winner and the 350-380 spread would have been a “comfortable” 25 fold winner in hindsight. I did hold my 06/20 expiration 450-550 call debit spread close to expiration, toughing out the COVID meltdown and closed it out about a month before expiration for a 50 fold winner. I am very grateful that this turned out profitable and that I learned a lot from the experience.

The main lesson I learned from this YOLO bet is that you either buy these when the sentiment is really bad, (i.e. right after a swift decline over a short period of time) or wait for the stock to set up and buy before it breaks out. I looked back at the options pricing data, the couple weeks before TSLA’s Oct 2019 earning turned out to be a better entry point, even for my YOLO bets. The stock itself had stabilized and was setting up beautifully and the YOLO bets I paid $1.xx each for when the price was near the low in June 2019 could have been bought for 30-50c.

Where is TSLA is going?

TSLA has broken below the big consolidation formation above 178/180 on high volume. Short-term sentiment has gotten ultra bearish and we could see a ferocious bear rally any moment now and I wouldn’t be surprised to see it back testing the important 178/180 level at some point next year just like it backtested 23ish before the parabolic run in 2020. The bottom line is, the best opportunity to sell the stock has long gone and many shareholders are now trapped above 178/180. With some of the richest people in the world selling the stock(Elon Musk, Bill Gates, Larry Ellison) it’s difficult to be on the other side of the trade.

TSLA has been one of the most shining poster child of this bull market since 2010. It has risen over 40000% from trough to peak in just over 10 years which has been a phenomenal run. At its peak, it was valued at just over $1.2T, by comparison, the total value of the entire US stock market at its November 2021 peak was about $45T. I think it’s been a played out story as big shareholders are cashing out at these prices. In history, these stock market darlings usually do not end too well. The best case scenario, like MSFT 0.00%↑ and AMZN 0.00%↑ , took years to recover. If your goal to investing is long-term capital appreciation, I say there are much better opportunities elsewhere. Just this morning, I saw these posts on the TSLA board on Stocktwits that gave me a chuckle. If you were a TSLA bear for the past decade, what makes you suddenly right as a TSLA bull after the stock just had a 400 fold run up in the past decade? I don't think that's how you make money investing and I think with this type of conventional thinking, TSLA will become a classic case of valuation trap and many value investors will end up getting hurt on this stock.

If you really want to buy the stock, I think you have plenty of time and you will see much better deal over the next year or two. It wouldn't surprise me to see it touching the 3.618 fib level in my chart below, which would be around $25, which coincidentally is around the top of the 2014-2019 consolidation zone just before the parabolic run in 2020/2021. You could also wait and see if Elon Musk will get another of those gigantic long-term stock options grant with huge market cap milestones that signaled the start of two prior parabolic runs, but no guarantee that he will be Tesla CEO forever. Cheers!