For TSLA, Future > Present; Plus Hang Seng

For the second time in less than a week, I find myself writing about Tesla (TSLA) on the heels of yet another double-digit percentage gain.  Last week, the story was about TSLA’s stunning post-earning rise.  At that time, we wrote:

With results like these [huge misses on revenues, EPS, and cash flow], any normal company would get shredded.  But TSLA is not now, nor has it ever been, a normal company.

… No one knows better than Elon Musk that TSLA investors have always been firmly focused on the future.  Thus, when the Chairman continued to stoke enthusiasm about a robotaxi and acknowledged that, contrary to reports, TSLA would indeed be focusing on the widely anticipated new entry-level car, that was the sort of buzz that put the stock price into ludicrous mode.

Today’s news builds upon the futurist theme.  After an unannounced (but well publicized once it began) visit to Beijing, there are published reports that TSLA has passed a regulatory hurdle for its self-driving technology and will team up with Baidu (BIDU) on data sharing.  Neither company has commented upon the reports, but investors are not sweating the details.  Besides TSLA rising about 12% as I write this, BIDU is up about 5.5%.  Not too shabby. 

Herein lies an important lesson for traders.  If you haven’t learned by now that shorting TSLA is a dangerous proposition, this should be yet another reminder.

An anecdote from last Friday illustrates this point.  During a Bloomberg TV interview just before Friday’s close, I was asked about how TSLA had been pricing in risk aversion ahead of its earnings report (at the 5:05 mark in this video).  Faithful readers will find the themes about faith-based investing in TSLA and futurism to be familiar, but the next guest was not.  As I returned to the green room, she said that she agreed with my comments about TSLA and mentioned how she was glad she wasn’t short.  We both admitted to taking profitable shots from the short side earlier this year, but also acknowledge that the only way to do it is to cover quickly and opportunistically (I shorted a few hundred shares around $220 and covered by writing $200 puts that were subsequently exercised). 

Conventional trading wisdom says to keep your losses small and let your profits run.  If you’re trading TSLA from the short side – or any other investor darling where the stock price can become unmoored from conventional metrics – you need to have the discipline to take your profits quickly as well.

On a separate note, it is important to refocus on BIDU and greater China.  There were overnight headlines that Hong Kong’s key index, the Hang Seng (HSI) had risen 20% from its year lows, putting the index into a bull market.  (Some late intraday selling pushed the index just below that threshold.)  I can’t stand arbitrary measures like that.  The HSI has indeed embarked on a stellar spike higher in recent sessions, but does this chart look like a definitive bull market to you?

HSI May ’24 Futures, 1-Year Daily Candles

Source: Interactive Brokers 

There may be very solid reasons for investors to be refocusing on both Hong Kong and mainland China.  There is a growing belief that China will be undertaking measures to boost its economy through fiscal and potentially monetary stimuli.  If those come to fruition, it is understandable why investors would seek to go bargain hunting in those markets.[i]  But until proven otherwise, this sharp jump seems more like a bear market rally – short, sharp and ferocious. 

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[i] IBKR customers can participate in this region not only by trading in US-listed Chinese Depositary Receipts, but also in local Hong Kong stocks and derivatives (subject to regional regulatory restrictions).