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Trading the Trend

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TSLA:

Electric-vehicle manufacturer Tesla reports earnings after the close of trading Wednesday. The report, and the subsequent stock-price reaction, should be wild. This is Tesla, after all.

Here’s what to pay attention to, along with some recent history.

  • Wall Street expects the company to lose 14 cents a share on $5.1 billion in sales. But both numbers look stale.
  • Tesla (ticker: TSLA) delivered more vehicles than expected in the second quarter—as well as more vehicles than in the profitable first quarter—but Wall Street has been slow to catch up. Earnings estimates for the pandemic-affected second quarter, when auto production was halted across the U.S., fell below $2 a share before rapidly recovering in July, after vehicle-delivery numbers were released. Second-quarter sales estimates fell below $5 billion and are edging higher.
  • Wall Street “whisper numbers”—which are, essentially, the most up-to-date estimates being talked about on the Street, but not reflected in published research—are roughly 50 to 75 cents in per-share earnings. Better than that will likely drive a positive stock-price reaction.
  • No matter what is reported, the size of the reaction, positive or negative is tough to call. Options markets are pricing in a post earnings move, up or down, of 15% to 20%. That is a huge move, implying a $300 price swing and up to $60 billion of market value.
  • The stock’s inclusion in the S&P 500 is one reason for the big potential swing. If Tesla posts a profit conforming to generally accepted accounting principles, or GAAP, it will most likely be added to the index.
  • Index addition creates new stock demand from funds tracking the S&P 500 as they rebalance portfolios to adjust for the change. It could amount to millions of Tesla shares being bought. More buying than selling drives up stock prices, but the size of the indexation benefit for the stock is debated.
  • After all, Tesla stock is up almost 290% year to date and 526% over the past year, crushing comparable returns of the S&P and Dow Jones Industrial Average over the same span. The gains have made Tesla the world’s most valuable car company measured by stock market capitalization.
  • Based on Wall Street research reports, indexation is now taken as a given. That means a GAAP loss looks like the biggest risk for Tesla stock in the quarterly report.
  • Beyond index inclusion, investors should look for news on China. “China a linchpin to the Tesla growth story in [the second half] and 2021,” Wedbush analyst Dan Ives wrote in a Monday research report. He thinks electric-vehicle demand is accelerating in China, a positive for all EV makers including Tesla. Ives rates Tesla stock the equivalent of Hold and has a $1,250 price target for shares.
  • Regulator credits are always a big issue for Tesla bulls and bears. The company is able to sell zero-emission vehicle credits to other auto makers needing to meet California emission standards. The amount of credits sold can affect reported earnings from quarter to quarter.
  • Overall, analysts are a little more cautious than they were heading into the earnings report. Tesla bull Joseph Osha, for instance, downgraded the stock to Hold on Tuesday, saying most good news was fairly reflected in the share price. Osha was the first analyst to crack the $1,000 target price barrier in March.
  • What’s more, Credit Suisse analyst Dan Levy warned in a July 16 report that a hiccup could lead to a stock price correction. Levy rates share the equivalent of Hold and has a $1,400 price target. CFRA analyst Garrett Nelson lowered his rating from Hold to Sell, while maintaining his $1,100 price target on July 17. Baird analyst Ben Kallo wrote on July 17 that risk/reward skewed negatively into earnings. He recommended investors take profits. Kallo rates shares Hold and has a $984 price target.
  • Most of the recent analyst comments are mainly about valuation. Most of them, while worrying about value, also point out that recent results and business execution have been better than expected.

Whatever happens to the stock Wednesday evening, it qualifies as must-see for all market denizens.

jog on
duc
 
ducati916 said:
I also think tech will unhinge from the general market volatility and operate under its own rules re. volatility.
Click to expand...

You're on the money duc - my portfolio used to pretty reliably move a couple of percentage points above whatever the nasdaq did (so the nasdaq would drop 1% and I'd still be 1% in the green) but it hasn't really done so for a week or two now.

It's generally moving in the opposite direction to energy - there's a pretty strong inverse correlation. I'm thinking of trimming a couple of positions and buying XLE as a hedge.
 
I said my portfolio, not the dow.
 
Here you go duc, almost a perfect inversion:





My portfolio's very nearly 2% positive at the moment when XLE is 2.2% negative so that'd give you (at this moment at least) a correlation of -0.9 just based on this morning.

I suspect if I was to go back over the data day by day I'd find a pretty solid inverse correlation between my portfolio and the energy sector, so if you're looking for something to track stay-at-home tech's volatility I suspect it'll be a close inversion of XLE.

The reason(s) why I should think would be obvious.
 
Related:

Remember when we were talking about what I own & why and I mentioned that I don't own slack?

https://www.cnbc.com/2020/07/22/sla...nticompetitive-practices-in-eu-complaint.html

IMO, long term, slack will go the way of dropbox once microsoft got onedrive working properly:



They can scream & yell & stomp their feet all they like, even if microsoft get slapped with tons of fines and even if they or other simple civil suit settlements go to slack, it won't matter, they'll just be speed bumps on the way to the inevitable. The very fact that the founder hasn't simply sold out to microsoft/microsoft buy it just to shut it down shows just what a moron he actually is.

Zoom, however, has some inherent advantages over MS teams that slack does not. That one's going to be a proper fight.

I own both.
 
Odds & Sods:

Positive news for the Banks, RE and the economy:



Market Cap. is an important issue re. indices currently:



Some TSLA news before earnings:



And from flippe-floppe-flye



jog on
duc

 

It must be a generational thing. I would rather stick a sharpened pencil in my eye than own that sort of stock. If it sneaks into an ETF that I own, oh well, I'll live with it.

jog on
duc
 
MSFT



Something like that for TSLA would suit me just fine.

jog on
duc
 
TSLA earnings out



By how much is now the question? I have a $600+/- cushion.

jog on
duc
 
So TSLA jumped to +7% at the high point (+$101/share) but has calmed down atm:



My position is probably safe.

Although Mr Musk will hold a conference call at 1730hrs. Now, he may be able to talk the shares even higher...so it ain't over yet, the fat lady is still to sing!

jog on
duc
 
Last edited:
Following yesterday 6% rise, silver is up another 8%.
@explod and other silver bugs will be as happy as i am.
just wished i had bought a bit more on the asx
usd overall slide continues so a good time to move AUD into the US, not so good for already invested amounts there
I like the last comment from slip slop sly about forgetting about trying to make sense of it all
be it Tesla or Zoom.....at least Tesla has no free competitors accessible with less effort actually widely used and integrated such as MS Teams/Google Meet.
 
@ducati916 a bit surprised you actually played Tesla, not really in the usual mindset of individual stock risk diversification via etf
 
qldfrog said:
@ducati916 a bit surprised you actually played Tesla, not really in the usual mindset of individual stock risk diversification via etf
Click to expand...

Correct. Back to my gunslinger days. However the IV was so ridiculous and all the way out to $800/away from market price, it was almost like free money.

jog on
duc
 
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