TSLA in a Bear Market

[Cherry Wine]

One of my biggest questions since investing in Tesla earlier this year is how the stock could be supposed to react during a broad general market downturn, improving fundamentals of the company notwithstanding.

Since we have some very seasoned investors that participate on this forum, I'm inviting those of you who care to share your thoughts to tell us how you think TSLA would behave should overall sentiment within equities markets turn substantially more bearish.

I wish I had the knowledge to postulate some theories of my own, but alas, they wouldn't be worth the proverbial paper upon which they would be written, so all I can do is ask the question.

 

[Zhelko Dimic]

This has been said before in many ways, but good company that has significant growth ahead of it, could be an ideal candidate to hide from the storm of the bear market. I believe Tesla to be in such position.

What complicates this premise is that TSLA was and it still is battleground stock, and that won't change overnight. There is a good contingent of shorts with very high conviction levels, whether they be 1. ideological, 2. out of hate for Musks' showmanship, 3. because of their close mindedness and numbers obsessions* or 4. result of convertible bond mechanical hedge opportunities.

As Tesla passes production and profit milestones, this contingent will wear thinner, but it's not something that will disappear overnight, not until Tesla success is undisputed. Until then, we should expect continued, massive volatility.
But I expect that Tesla has achieved escape velocity and inflection point is behind us, and nothing can kill it anymore.

So, if you are long termer, I feel it's a safe place to hide. Short terms continues to be dangerous place for next 6-24 months in my mind.

* There is a good number of WS analysts that have never been part of 'real' workforce, product company, and cannot understand genesis of a great company, and startup mentality, not enough to see beyond horizon and project success. Being obsessed with numbers doesn't let them understand real value creation that occurs, when amazing organization, with amazing people and amazing product is being born. They are good at understanding slow moving steady state businesses, but new entrants are beyond their scope of expertise; if they haven't spent time trying to understand that particular phenomenon. WS is full of these. And looking at ratio of startup failures, they can't understand which ones will die vs. thrive, so they either clamp them with poor startups, or evaluate as if it were a steady state business.

 

[Cherry Wine]

This has been said before in many ways, but good company that has significant growth ahead of it, could be an ideal candidate to hide from the storm of the bear market. I believe Tesla to be in such position.

What complicates this premise is that TSLA was and it still is battleground stock, and that won't change overnight. There is a good contingent of shorts with very high conviction levels, whether they be 1. ideological, 2. out of hate for Musks' showmanship, 3. because of their close mindedness and numbers obsessions* or 4. result of convertible bond mechanical hedge opportunities.

As Tesla passes production and profit milestones, this contingent will wear thinner, but it's not something that will disappear overnight, not until Tesla success is undisputed. Until then, we should expect continued, massive volatility.
But I expect that Tesla has achieved escape velocity and inflection point is behind us, and nothing can kill it anymore.

So, if you are long termer, I feel it's a safe place to hide. Short terms continues to be dangerous place for next 6-24 months in my mind.

* There is a good number of WS analysts that have never been part of 'real' workforce, product company, and cannot understand genesis of a great company, and startup mentality, not enough to see beyond horizon and project success. Being obsessed with numbers doesn't let them understand real value creation that occurs, when amazing organization, with amazing people and amazing product is being born. They are good at understanding slow moving steady state businesses, but new entrants are beyond their scope of expertise; if they haven't spent time trying to understand that particular phenomenon. WS is full of these. And looking at ratio of startup failures, they can't understand which ones will die vs. thrive, so they either clamp them with poor startups, or evaluate as if it were a steady state business.

Many thanks for the response. Do you think it reasonable to think that the stock price could break back down into the high-to-mid $200s during such a period (or lower)? Or do you think impacts will more likely be limited to constrained upside?

Appreciate your thoughts.

 

[anthonyj]

Elon Musk faces margin calls at $230. That level must not and will not be breached. There is a guardian angel to suck in shares when the price gets too close. Sounds far-fetched but true

 

[CorneliusXX]

Elon Musk faces margin calls at $230. That level must not and will not be breached. There is a guardian angel to suck in shares when the price gets too close. Sounds far-fetched but true

Has this been verified anywhere? I doubt the information would be shared publicly.

 

[Zhelko Dimic]

Many thanks for the response. Do you think it reasonable to think that the stock price could break back down into the high-to-mid $200s during such a period (or lower)? Or do you think impacts will more likely be limited to constrained upside?

Appreciate your thoughts.

I'm not an expert on SP movement. The only thing I've learned in 4 years with TSLA is to expect the unexpected, and prepare for the worst. Much more so than any of my previous experiences with FANG stocks, even when they weren't as popular, and FB, NFLX, AMZN were routinely in doldrums for quarters. Yet, nothing as bad/irrational/weird like TSLA. Lack of preparedness cost me dearly couple of times, so I'm very careful now, if you can call near 100% TSLA careful.

At some point, TSLA volatility will normalize, but I don't expect it yet.

To quantify my level of preparedness: If nothing fundamental changes, I'd be steadfast in seeing $180 and carrying that position for 2 years.
I don't expect this to happen! But by considering worst case scenario, I'm steeling myself against panic, and also it's a consideration, when I inevitably leverage again, as I will be tempted; my leverage has to survive prev. scenario with no more than 10-20% time-value loss (i.e. how many shares I own, irrespective of the share price)

BTW, I do expect that we shoot up at some point 30% up to maybe 120% from here, but no clue when and how...

 

[S'toon]

I've been wondering this myself. The stock market crashes every 8 to 12 years. It's been 10 years since the last one. There are signs that it will again soon.

These market corrections actually parallel the corrections that happened before the Wall Street Crash of 1929.

There's an inversion of interest rates between long term and short term bonds. Long term bond are higher than short term. Right now short term bond rates are higher than long term rates. This happened before the 2008 crash, and the 2000 crash, the 1991 crash, and the 1981 crash.

Why the Yield Curve Is Inverting Now

 

[CHGolferJim]

I read something recently that seemed authoritative that said historically US recessions begin on average about 18 months after the curves first invert. No doubt there is a range, that’s the average.

 

[Cherry Wine]

I read something recently that seemed authoritative that said historically US recessions begin on average about 18 months after the curves first invert. No doubt there is a range, that’s the average.

Right -- recessions begin 18 months subsequent to inversion. A bear market also usually precedes recessions, correct? Therefore, we are likely to see a bear market sooner than later if these theses (say that 10 times fast) hold true this time around.

 

[dhrivnak]

Many thanks for the response. Do you think it reasonable to think that the stock price could break back down into the high-to-mid $200s during such a period (or lower)? Or do you think impacts will more likely be limited to constrained upside?

Appreciate your thoughts.

I would be VERY surprised for the stock to drop below $250 with the slight exception of a major earthquake that splits Fremont.

 

[ReddyLeaf]

I would be VERY surprised for the stock to drop below $250 with the slight exception of a major earthquake that splits Fremont.

Please don’t say that.

 

[Zhelko Dimic]

I would be VERY surprised for the stock to drop below $250 with the slight exception of a major earthquake that splits Fremont.

Agreed 100%.

TSLA has never truly lost 200 average on a weekly chart, which is $268.5 nowadays.
It was challenged 4 times so far in an uptrend and held. Those 4 times I remember as some of the most challenging times.

If that one broke for more than 2 weeks, I'd look very carefully if something fundamentally changed, but would be ready to ride down if I had to, and I didn't see the change. But not expecting it...

 

[Zhelko Dimic]

Right -- recessions begin 18 months subsequent to inversion. A bear market also usually precedes recessions, correct? Therefore, we are likely to see a bear market sooner than later if these theses (say that 10 times fast) hold true this time around.

Tony from Cannacord is the one that has been beating that drum for years. I've heard him at least 6 times describe this 4-5 years back.

Here is what he said in the past:
- 18 months on average between inversion and stock market crash
- Market rallies in those last 18 months significantly, so you don't want to be too early out
- He looks (I think, 90%, but not positive) at 2 year - 10 year curve, which still hasn't inverted. It touched 0.1% and is 0.16% now: 10-2 Year Treasury Yield Spread (3-5 years curve inverted)

 

[Zhelko Dimic]

Tony from Cannacord is the one that has been beating that drum for years. I've heard him at least 6 times describe this 4-5 years back.

Here is what he said in the past:
- 18 months on average between inversion and stock market crash
- Market rallies in those last 18 months significantly, so you don't want to be too early out
- He looks (I think, 90%, but not positive) at 2 year - 10 year curve, which still hasn't inverted. It touched 0.1% and is 0.16% now: 10-2 Year Treasury Yield Spread (3-5 years curve inverted)

This guy:
Wall Street bull Tony Dwyer won't turn negative until 3 key market elements break down
One of these days he will be wrong, but 5 years ago when people were taking recession too, I found that his reasoning made sense and it paid to listen to him...

 

[neroden]

Since we have some very seasoned investors that participate on this forum, I'm inviting those of you who care to share your thoughts to tell us how you think TSLA would behave should overall sentiment within equities markets turn substantially more bearish.

"Better than an index fund."

I'll leave it at that.

 

[bonaire]

Recently, we heard Tesla lowered prices in China for S and X.

In 2019, would it surprise anyone to see USA lower S+X prices by 3750 in light of the tax credit dip? This lowers cars by more than that price because sales tax is computed off the selling price, so some folks would experience 3900 in lowered costs and in CA, as much as 4000 off prices.

I do not think sales of S+X or Model 3 Perf would be hurt if prices could be lowered in 2019 in the USA to match the tax credit dip.

 

[defc0n]

Recently, we heard Tesla lowered prices in China for S and X.

In 2019, would it surprise anyone to see USA lower S+X prices by 3750 in light of the tax credit dip? This lowers cars by more than that price because sales tax is computed off the selling price, so some folks would experience 3900 in lowered costs and in CA, as much as 4000 off prices.

I do not think sales of S+X or Model 3 Perf would be hurt if prices could be lowered in 2019 in the USA to match the tax credit dip.

Are you BonaireVolt in Twitter?

 

[Zhelko Dimic]

Re volatility last couple of days. Anything between $385 and $260 is fair game in my book. Only breaching one of the two boundaries will make me reconsider if that were change in character of trading.
Yeah, I know $260 looks almost impossible from here, but it's TSLA...

 

[neroden]

Zhelko: you may be right. At $260 I'd be converting most of my other stocks into TSLA (semi-automatically, since I've sold puts). Given the current state of Tesla, that would be a nutty good price.

 

[Cherry Wine]

Zhelko: you may be right. At $260 I'd be converting most of my other stocks into TSLA (semi-automatically, since I've sold puts). Given the current state of Tesla, that would be a nutty good price.

I wish I had the collateral for selling puts -- it's my ideal strategy. I'm stuck writing covered calls against some stock and LEAPs.