Tesla (Nasdaq: TSLA) Has been one of the biggest stock stories of 2020. The stock has gained 550% since January 1, believing in the business model Dell created by CEO Elon Musk. According to Forbes, Kasturi himself is among the biggest winners of Tesla Stock, ranking third among the richest people in the world.
In the long run, stock movements reflect the success or failure of the business within the company. It is very difficult to measure short-term stock price swings. Still, there’s a good reason why Tesla’s stock looks to be up to 600 per share in the very near future. It can be a lot more if the conditions are right.
Image source: Tesla.
It is a matter of supply and demand
Tesla has a lot of metrics that investors look for quarter after quarter. Delivery statistics are probably the most important, usually coming out in the first days of each new quarter. Earnings reports also clearly carry significant weight.
Behind all those catalysts during the current quarter, the amount of basic news affecting Tesla between now and the end of the year is likely to be low. Which makes the share price more sensitive to factors that are not included in Tesla’s commercial power.
In particular, between now and the end of the year, the biggest driver of Tesla stock is likely to decide to add Tesla to Tesla through the S&P Dow Jones indicators. S&P 500 Index bull case is very simple:
- Existing shareholders know that index funds monitoring the S&P 500 will need to buy significant amounts of Tesla shares on or before December 21.
- Knowing that all those purchases are on the horizon, there is very little reason for shareholders to sell now.
The huge amount of money following the S&P 500 is incredible. The S&P Dow Jones index states that assets of .2 11.2 trillion use the S&P 500 as a benchmark for comparison purposes. Of this amount, more than 40% – 6 4.6 trillion – are indexed assets that are directly linked to the components of the S&P 500.
A lot of real shopping is coming
Based on Tesla’s current market capitalization, estimates suggest that its weight will be between 1% and 1.5% of the S&P 500. Take this amount and apply it to S પી 4.6 trillion in S&P-tracking assets, and you’ll get 46 46 billion.
That amount is so huge that the S&P Dow Jones has focused on spreading Tesla’s inclusion in a few days. No final decision has been made on that front, but breaking this step could make it easier for mandatory buyers to find willing sellers.
Short squeeze comes?
Another thing to keep in mind is that Tesla already has a lot of investors betting on its stock. As of the end of October, about 48 million shares of Tesla stock – more than 25 25 billion at current prices – have been sold short. It represents the remaining 5% share.
If index-related buyers lead to higher share price pressures, the resulting squeeze on short sellers could lead to more sharp moves. Admittedly, after the big gains in Tesla stocks this year, anyone selling stock shorts has to be prepared for extreme risk, and so they are less likely to shrink than most short sellers. Still, there are very short-selling investors willing to lose. It can also leave the stock on a big short-term bump.
The holidays will be interesting for Tesla
For many investors, the addition of Tesla to their index fund holdings will be the first time they have owned shares of Electric Auto Tommaker stock. They have no choice in the matter.
However, if you think Tesla’s underlying business justifies a big jump in its share price this year, then you may choose not to wait until the index funds buy. The share price will rise sharply soon. Sense in the world.
