Chart Advisor: Mixed Signals

Articles From: Investopedia
Website: Investopedia

Tuesday, 23rd November, 2021

1/ Indexes pause at top of 18-month long run 

2/ Tesla’s price influence growing stronger 

3Could TSLA shares pull back? 

4/ The bottom line

1/ Indexes Pause at Top of 18-Month Long Run

Though the major indexes closed with mixed results, today is good day to reflect on that market’s bigger picture. Much has changed over the course of the past year and a half, as a new normal appears to have been established since the world collectively began experiencing the COVID-19 pandemic. Through periods of uncertainty, civil unrest, and unexpected change, people have become somehow more divided yet more together than ever before. 

The chart below illustrates this time period, highlighted by the performance of State Street’s S&P 500 Index ETF (SPY) and Invesco’s Nasdaq 100 ETF (QQQ). These two indexes could be said to represent individuals, groups, and our great country. 

Despite these indexes taking it on the chin initially, the ongoing economic and social recovery has been astounding. The rapid crash and rebound proved to be a springboard for SPY and QQQ, driving markets to new all-time highs. 

As investors gather this holiday season, no matter which holidays are celebrated, they can be grateful for how far we’ve come, and hopeful for how far we may yet go in the future.  

2/ Tesla’s Price Influence Growing Stronger 

The chart below is a recent comparison of the performance between Tesla (TSLA), ARK’s Innovation ETF (ARKK), iShares’ Global Clean Energy ETF (ICLN), Bitcoin (BTCUSD), and Dogecoin (DOGEUSD).  

Recently joining the exclusive $1 trillion market club, TSLA’s reach across the market covers a wide swath of equities. Both ICLN and ARKK have major positions in TSLA, and TSLA itself has positions in BTCUSD.

ARKK hasn’t fared well recently, as Cathie Wood’s fund has shed 16% year-to-date while TSLA has moved 46% higher in the same span. ICLN has seen similar returns, falling 17% since the start of 2021.  

While DOGEUSD has added nearly 4,000% in 2021 on the strength of TSLA CEO Elon Musk’s tweets, the dog-themed cryptocurrency has underperformed since its run up in May. Meanwhile, BTCUSD has recently claimed new highs while adding 95% on the year.

3/ Could TSLA Shares Pull Back? 

Since reporting earnings in mid-October, the share price of Tesla (TSLA) rose aggressively, before pulling back slightly to an above average range. The chart below illustrates how TSLA shares broke the extreme highs of its volatility range, before falling back toward the middle, and is currently trading just below its 20-day moving average. 

TSLA’s post-earnings share price increase coincided with a bull run on clean energy and electric vehicle stocks on the heels of a large U.S. infrastructure spending bill.  

Option traders appear to be positioned for the electric vehicle maker to move lower in the near term. The open interest for TSLA features over 3.2 million put options compared to 2.7 million call options. While recent trading volumes slightly favor calls over puts, the open interest and implied volatility paint a clearer picture.  

While the disparity between calls and puts in the open interest doesn’t seem that large at first, implied volatility suggests that option traders are selling call options, while buying put options. An increase in open interest, along with an increase in implied volatility, implies traders are adding new options positions, using puts. The opposite is occurring with calls, traders are selling those, indicating that option traders are bearish toward TSLA in the near term. 

4/ The Bottom Line 

As the market closed today with mixed signals, it might be appropriate to consider how far it has come since the days of the early pandemic. Of all the storylines to consider, the increasing influence of TSLA stock is probably the most interesting. 

Originally posted on 23rd November, 2021

Disclosure: Investopedia The comments, opinions and analyses expressed herein are for informational purposes only and should not be considered individual investment advice or recommendations to invest in any security or to adopt any investment strategy.  While we believe the information provided herein is reliable, we do not warrant its accuracy or completeness. The views and strategies described on our content may not be suitable for all investors. Because market and economic conditions are subject to rapid change, all comments, opinions and analyses contained within our content are rendered as of the date of the posting and may change without notice. The material is not intended as a complete analysis of every material fact regarding any country, region, market, industry, investment or strategy. This information is intended for US residents only.

Disclosure: Interactive Brokers

Information posted on IBKR Campus that is provided by third-parties does NOT constitute a recommendation that you should contract for the services of that third party. Third-party participants who contribute to IBKR Campus are independent of Interactive Brokers and Interactive Brokers does not make any representations or warranties concerning the services offered, their past or future performance, or the accuracy of the information provided by the third party. Past performance is no guarantee of future results.

This material is from Investopedia and is being posted with its permission. The views expressed in this material are solely those of the author and/or Investopedia and Interactive Brokers is not endorsing or recommending any investment or trading discussed in the material. This material is not and should not be construed as an offer to buy or sell any security. It should not be construed as research or investment advice or a recommendation to buy, sell or hold any security or commodity. This material does not and is not intended to take into account the particular financial conditions, investment objectives or requirements of individual customers. Before acting on this material, you should consider whether it is suitable for your particular circumstances and, as necessary, seek professional advice.

Disclosure: Options Trading

Options involve risk and are not suitable for all investors. Multiple leg strategies, including spreads, will incur multiple commission charges. For more information read the “Characteristics and Risks of Standardized Options” also known as the options disclosure document (ODD) or visit