The Tesla (TSLA) shorts are being squeezed. Here’s your trade. (July 01, 2013)
Discussed in this article: Tesla Motors Inc. ( $TSLA )
I want to look at Tesla (NASDAQ: TSLA ). This stock closed at an all-time high today. We’ve been waiting for this break out, fine, what are we going to do with it now? I’ve seen, and I’m sure you have too, unless this is a brand new ticker for you, you saw the big run up here. A lot of that, as the stock moved higher and higher, was short covering, this stock has a really, really high short interest it just doesn’t look like it here; I should say a lot of shares that are short, the stock trades in massive volume, almost eleven million today, so it wouldn’t take that long for the shorts to cover if all they did was cover. But I think thirty percent of the float is short, and so if you are in that thirty percent you need to cover. You see this stock consolidating after this kind of move; you see the news, the company is grossly over valued from a P/E standpoint, cannot disagree with that.
This looks like a stock that absolutely begging to be shorted, and at some point I believe Tesla (NASDAQ: TSLA ) is going to be below $117.00 here. But when you see a stock that looks like it’s just begging to be shorted, and the stock is consolidating like this, you know that there are a lot of folks who have seen that the stock has been begging to be shorted and they oblige. So this was, in my view, a pretty obvious short squeeze. I also believe that the short squeeze is not over, I think Tesla (NASDAQ: TSLA ) goes higher because this is a short squeeze, and this is what happens when shorts are squeezed.
Lets break down the action today. I want to go intraday here, and I want to stress what the lesson really is, how do you hang on to a stock like this, when on the intraday, when the stock moves like this; it’s down here at 107, 5-minutes into the market, it’s up at $112.00. If you’re looking at this stock on an intraday basis you’re thinking, “I’ve got to be selling this stock, or options on it whatever you have.” But as you look at a stock like this you think, “Yes, that’s the prudent thing to do. The stock moves up like this, it goes up so high, you’ve got to be selling that.” But go back to the daily chart and ask, why is this doing this? Why do I think this stock is doing this? We think the stock is doing this because there is a short squeeze in process. Now when the shorts get squeezed what happens? The stock goes up further and faster than you think. Which means it’s just doing what it’s supposed to do and is likely to keep going up.
So on an intraday chart, when you’re seeing this kind of action, should you close out your position? Well, ask yourself whether there’s a short squeeze that’s occurring? If a short squeeze is occurring and you are selling those shares, who is happy to buy them from you, those shorts that are covering? What I am saying is when you see a short squeeze in process do not let those shorts out of their trade. Let somebody else capitulate, and just sell and take a small profit; you hang on, let these shares go higher, keep a stop, definitely keep a stop on your positions, don’t be giving back all of your money on your stock or your options. Definitely set a stop and make it a trailing stop, because you want to hold this stock for as long as you can, because it’s not often that you have an ability to get into a stock before it runs up nine percent in a day. So I’m not exactly going out on a limb here when I say that I think Tesla (NASDAQ: TSLA ) is going to push above 120, and when it does that I could see this stock getting up to 130 in a hurry.