- Tesla shares have fallen more than 20% from their highs this week.
- Even when Wall Street analysts warned about the strange disconnect between stock prices and fundamentals, Robinhood traders did their best.
- They are about to learn the hard way about the counterintuitive effects of a “little squeeze” and the inevitability of reversal to the mean.
After doubling its previous record high in less than two months, Tesla (NASDAQ: TSLA) shares accelerated this week.
By Friday afternoon, Tesla shares fell 21% from their July 20 high.
That’s despite the good news that the automaker finally made a profit for four consecutive quarters, technically qualifying it to join the S&P 500 index.
TSLA traders couldn’t resist taking profits from the frenzied bull run.
The first money that is being evaded is an inevitable short-term reckoning with the overvaluation of the hot summer stock.
the last money on you are buying a bag full of foam. That would be “silly money”. And there is no doubt where it comes from.
Smart money speeds up, but Robinhood’s Racing In
According to Robintrack, Tesla was the most popular action on the Robinhood brokerage app for the past 24 hours.
More than 16,000 new Investors bought TSLA shares in a single day. That is even more impressive considering that it has already appeared in over half a million portfolios.
Robinhood’s user base is reaching out to younger, more inexperienced investors in the millennial cohort. And it’s packed with impulsive amateur traders.
Institutional money disagrees with the retail crowd about the fate of Tesla’s shares.
When asked to speak about high-flying actions like Tesla on Thursday, SEC President Jay Clayton said: “I am concerned.” He warned that the pattern of trading with “significant inflows from retail investors” is “much more risky” than long-term and sober investment.
The retail public is trying to get rich quickly, and that rarely ends well.
Tesla Stock is still in a short compression bubble
Elon Musk may be ready to back down his opposing comments on retail investors.
In a January conference call with shareholders, he stated that retail investors have “better ideas” than Wall Street:
I believe that many of the retail investors actually have deeper and more accurate insights than many of the large institutional investors and certainly have better insights than many of the analysts.
Since then, retail investors have split radically from Tesla’s CEO over the value of his company’s stock. They have raised the TSLA to twice its share price since May 1, when Elon Musk said “the share price is too high.”
This year’s extraordinary rally is a part of euphoria, a part of FOMO (fear of getting lost) and several parts of a short Tesla squeeze.
TSLA started the new decade as the shortest American action. The short interest in the company in January was even greater than Apple’s (NASDAQ: AAPL).
Back then, Tesla had a market capitalization of 1/14 of Apple. That ratio is 1/6 today.
Short sellers have lost billions this year in their bets against Tesla. And as they covered their positions, they pushed the stock price higher and higher. And again.
The unsophisticated retail investors that accumulate in this bubble have little or no conception of these Byzantine operations on the stock markets. They naively rely on past performance in hopes of future returns.
Let’s fix this once and for all: Elon Musk and Wall Street are right; People who invest in their pajamas are wrong.
Disclaimer: This article represents the opinion of the author and should not be considered a commercial or investment advice of CCN.com. Unless otherwise indicated, the author has no position in any of the actions mentioned.
