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January, 2020

Three Critical Lessons From Tesla’s Epic Rally

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Summary:

Having a Unique Data Advantage Can Pay Off Big.
Short Squeezes Can Be Epic.
You’ll Never Exit A Position Perfectly.

TSLA stock is booming, having tripled in value from $180 in June of 2019 to over $540 today.

While those who missed the epic rally can’t go back in time and buy the stock, we can look back and learn from the clues that were available along the way.

Here are three lessons we can learn from the TSLA rally:

#1 Having a Unique Data Advantage Can Pay Off Big

 Just TSLA stock was hitting lows just under $180 in June of 2019, Purchase Intent Mention Volume (which uses social media data to measure consumer demand for brands and products) had surged 187% year over year.
 
Purchase Intent Mentions for Tesla Surged in Q2 of 2019

When the stock moves in the opposite direction of our purchase intent mentions, we call that “divergence.” Divergence is often a powerful investment opportunity as it demonstrates that Wall Street has not yet caught on to what is happening with consumers on Main Street.

To top it off, deeper analysis of this data indicated that most of this demand increase was coming from the Model 3 brand, which Musk had essentially bet the company on.

#2 Short Squeezes Can Be Epic

One look at “TSLAQ” commentary on the internet makes very clear — this is a hated stock by many, many very dedicated analysts who see major problems with everything from the company’s products to its accounting methods and brash style of its CEO, Elon Musk.

All of that negativity comes to fruition in the stock market through short-selling, which occurs when traders sell borrowed shares that they do not own.

Short-sellers are anticipating that the stock price will be lower in the future, allowing them to buy the borrowed stock back at a lower price and keep the resulting profit.

Of course, short sellers have to buy the stock back at some point in the future. A short squeeze occurs when a heavily shorted stock like TSLA begins to rally, causing short sellers get nervous and begin to exit, by buying shares, driving the price even higher. 

It’s a vicious cycle if you’re bearish — and a beautiful sight when you own shares.

#3 You’ll Never Exit A Position Perfectly

Extreme rallies like this can end in a devastating reversal, so it’s tempting to sell into early gains.  This is especially true after the stock has struggled to make gains in a hot overall stock market.

But these short-squeeze-fueled rallies can also last a lot longer than people think, especially when consumer demand for the company’s products is increasing dramatically.

BONUS #4 — A Lesson For The Ages

Never bet against a billionaire rocket scientist who hates short sellers.

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