Elon Musk said he would roast the shorts. Thursday, he made good on that promise.
Prior to Wednesday's earnings report, Tesla (TSLA) was one of the most heavily shorted stocks on Wall Street, with a $10.5 billion in short interest.
Back on June 17, Musk tweeted that Tesla shorts had about three weeks before their positions would be torched. He was a few weeks late, but he came through. Musk took a flamethrower to Tesla shorts, proving once again that investing isn't simply a game of cold facts, it's also a game of perception and future expectations.
This stock generates strong opinions from all sides. The shorts are focused on Tesla's alarming cash burn and seeming inability to turn a consistent profit, while longs point toward the company's increasing output and sales as a bridge to stability.
Tesla longs have endured a ton of negativity over the past three months, starting with Musk's alarming behavior on the first-quarter earnings conference call. Musk said all the right things this time, apologizing for his previous inappropriate comments.
However, the rehabilitation of Musk's image was secondary to the company's claim that it would become cash flow positive in Q3 and Q4. Tesla increased production of its Model 3 to 5,000 per week in July, and now says that figure will hit 6,000 per week by late August.
At the same time, Tesla's capital expenditures fell slightly from the previous quarter. This left the company with a cash pile of $2.2 billion, which was more than expected. Tesla also reduced its capital expenditure projections for the year by about $500 million. In other words, the company will burn cash more slowly than anticipated in the near term. This lessens, and may eventually eliminate, Tesla's need to raise additional capital.
Add it all together, and you have a stock that rallied by over 16% Thursday. Where does Tesla go from here? Let's go to the chart.
Tesla's MACD (moving average convergence divergence) indicator flashed a buy signal Thursday. This indicator has been notably accurate on this stock in recent months. Of the previous five signals, three sells (red) and two buys (green), only one failed (circled).
Also, Tesla's 50-day moving average (blue) just crossed above its 200-day moving average (red). This crossover (shaded yellow) failed to generate a legitimate golden cross, since the 200-day MA was sloping downward at the time. The takeaway here is that the stock is now trading above both of those key moving averages.
Tesla's next obstacle is a resistance area between $365 and $375 (shaded light blue), the scene of a prior double top. This is the last major hurdle between Tesla's current price and $400.
(Ed Ponsi's commentary originally appeared on Real Money Pro at 11:30 a.m. ET on August 3rd. Click here to learn about this dynamic market information service for active traders and to receive Doug Kass's Daily Diary and columns from Paul Price, Bret Jensen and others.)