So we finally found natural sellers in Tesla (TSLA) . The stock had skyrocketed to $968 to get there, but they came out of the woodwork and collapsed the stock with their supply. Today's just an extension of what happened after the sellers let some air out of the balloon, although the fact that it's still up 82% indicates there's plenty of helium left in the darned thing.
What happened with Tesla yesterday, and why do I definitely think it's not done climbing although it may no longer be breaking the land speed record as it retraces its steps?
First, with a stock like Tesla a cheerleader can play a very big role. The biggest cheerleader in Tesla is a money manager named Ron Baron who owns 1.63 million shares of the stock.
Ron is an excellent manager who has been right as rain about Tesla for ages. I think that when informed speculators heard that Baron would be on Squawk Box they knew that he would tout it so they ran ahead of his appearance and bought a ton of stock.
On Tuesday morning Tesla began to levitate before the market opened as it often does. That's brokers going into the open market to deliver stock to what we call a natural buyer, meaning one that isn't covering his short sale, but is trying to establish an actual position in the name.
Then Baron came on and talked about how the company could have a trillion in revenues out 10 years.
Now you may laugh at that but given how smart Baron has been about Tesla he is difficult to doubt, especially when he says he's not selling any of his shares.
If you didn't know Ron was going to be on Squawk or you doubted that he play a role in Monday's substantial move higher, you may have bought the stock on his say-so. Sure seemed compelling enough.
There was only one problem. At last there were sellers loaded for bear, the flippers who bought the day before. When they started blasting the bids they began to knock it off its $900 pedestal. They were selling real stock, not more short stock so there was a genuine heaviness that really spooked the market. Remember, had it been more short stock and the stock didn't go down we would have that same buy-in effect the next day.
I then believe that once it started coming down the people who borrowed money to buy the hottest stock in the universe to own it, and then they had no choice but to sell once it started reversing so they didn't get blasted out of their stock below where they bought it.
Today's cascade is, once again, based on real sellers although I think there are some short sellers coming back into the fray, too.
No sooner did it peak than I started hearing how it was bitcoin in the run up to almost $20,000 or the Tilray (TLRY) short squeeze, which took the stock of the cannabis company from $109 to $214 in a couple days' time. The implication of both is that Tesla's swan dive is just beginning now that we know real sellers can be found.
I profoundly disagree about Tesla's stock being done. I reject the two analogues: bitcoin was overwhelmed by multiple alternative currencies. Tilray was one of a gajillion pot companies that came public and it was shorted way too soon by too many players.
More important than the mechanics of buying and selling and short selling, I think that Tesla is a unique tech growth company on wheels that uses less energy in a world where sustainability is, these days, a defining characteristic of what you need to have to attract many people to buying a car. The fact that the company has to do no advertising to attract buyers, something the other car companies out there can only dream about, and that it has too much demand and not enough supply tells a great deal about the company, the product, and the person behind it, Elon Musk. Consider how Ford (F) has to close six plants in Europe because they are losing money, while Musk is building a plant in Germany to meet demand says it all.
So, understand that the reversal today is something that happens in the natural course of a stock that's too heavily shorted, but unlike so many of the heavily shorted stocks, this one is the real deal. I don't know when it will hit $968 again but I bet when it gets there next time there will not be a ton of stock waiting to blast out of it. I bet it goes right through because it will deserve to.
