Chart Advisor: Mixed Signals

Tuesday, 23rd November, 2021

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

2/ Tesla’s price influence growing stronger 

3/ Could 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. 

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Originally posted on 23rd November, 2021