After years of teetering back and forth between financial disaster and a breakout boom, Tesla Inc's TSLA stock once again appears to be on the doorstep of a massive short squeeze.
On Friday, S3 Partners analyst Ihor Dusaniwsky said Tesla’s 126% rally since its June lows have it on the brink of what could be an explosive short covering event.
On June 3, Tesla short sellers were having a great 2019 and were sitting on a $5.1 billion year-to-date profit with the stock down 46% on the year. Since that time, Tesla shares have caught fire, and short sellers are now down $2.43 billion overall in 2019 heading into the closing days of the year. In fact, Dusaniwsky said Tesla shorts are down $1.16 billion in mark-to-market losses in the past week alone.
The good news for Tesla shorts is the stock has avoided a classic short squeeze up to this point. Tesla’s short interest has fallen by 18.2 million shares in 2019, a decrease of roughly 42% from the start of the year. It has dropped by another 3.2 million shares in December alone, but Dusaniwsky said the outstanding value of Tesla’s short position is actually up about $2.47 billion since June 3 thanks to the rally.
However, the recent push to all-time highs above $400 is now starting to test Tesla short sellers’ pain tolerance.
“Tesla shares shorted have not dipped below 20 million shares since mid-2013, but as its stock price keeps hitting historical highs we can expect short covering to accelerate as short mark-to-market losses mount,” Dusaniwsky said.
Tesla’s short interest currently sits at $10.29 billion, meaning another 10% rally (to around $445) would create an additional $1 billion in losses for short sellers.
“What was a seven month long ‘hug’ is turning into a full-blown ‘squeeze,’” Dusaniwsky said.
Tesla shares have been all over the map in 2019 as the company struggles to prove to its skeptics it can be consistently profitable. Despite the volatility, Tesla shares are now up 22% overall in 2019.
Tesla's stock traded around $406 per share at time of publication.
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