Trade the news, “Don’t buy a Tesla during a production ramp”, Elon Musk warns

Elon Musk agreed with some criticism of some Tesla vehicles and advised against buying Tesla vehicles during a production ramp-up. Ok, how did the market react?

This blog is about how fundamentals, news and sentiment move specific assets over a short period of time. I am sure you have been watching closely, how social media and especially followers of Reddit, managed to move GameStop to unsustainable highs, due to influencers. That’s part of this story, markets are increasingly influenced by the growing social media opinions by retail traders and that is starting to concern the financial regulators across the globe but also giving chances to traders that see the opportunities of the volatility.

Look at this!

With reference to Tesla, it has risen massively in recent months and the big question with many long-term investors, is the current price a bubble?

I am not sure, however, in terms of the volatility of the stock for a short-term trader, they may be taking a glance at Elon Musk’s recent comments.

Bear in mind, this guy has become the richest man in the world, over a short period and like former President Trump, when he tweets, the markets react.

Example, last week, the price of bitcoin rose again sharply after Musk said he was a “supporter” of the cryptocurrency.

“Bitcoin is a good thing,” Musk said in comments broadcast on social audio app Clubhouse. Musk said he was “late to the party” in backing bitcoin.

Bitcoin then surged to above $38,000 that day after Musk changed his biography on the Twitter social network to simply “#bitcoin”. A sharp jump of around to 20%.

Yes, that is the power of an influencer, especially to the new breed of retail traders, interested in quick, often risky trades.

Do you recall Musk tweeting on August 7, 2018 that he could take Tesla private at $420 per share, a substantial premium to its trading price at the time, the stock jumped 6% and he got a big fine from the US the Securities and Exchange Commission!

Yesterday, Tesla CEO admitted to vehicle quality issues at certain times in an interview.

Elon Musk agreed with some criticism of some Tesla vehicles and advised against buying Tesla vehicles during a production ramp-up. Ok, how did the market react?

In an amazingly frank interview with engineering consultant Sandy Munro aired Tuesday on the “Munro Live” YouTube channel and podcast. Musk had a blunt answer when asked about quality control issues: “It took us a while to kind of iron out the production process. Friends ask me: ‘When should I buy a Tesla?’ And I’m like: ‘Well, either buy it right at the beginning, or when the production reaches a steady state. During that production ramp, it’s super hard to be in vertical climb mode and get everything right on the little details.”

Musk can be frank and candid, I don’t think he keeps an eye on the stock price like some avid traders or investors, he says it as he sees it because that’s his nature and has a bigger picture.

However, how will investors digest such comments and more importantly, will they sit on the stock?

This latest revelation comes after last month, when the US National Highway Traffic Safety Administration sent Tesla a formal letter requesting the recall of 158,000 cars.

The recall follows pressure from US regulators and was posted to a US government website on Tuesday, stating that 2012-2018 Model S and 2016-2018 Model X vehicles pose a safety issue.

So how is the actual company performing, was the surge in investment more to do with sentiment and not about its actual profitability?

Tesla recently released the numbers for their performance for the entire calendar year of 2020. While there was some disappointment regarding the strength of Tesla’s profitability, the company’s overall profitability for the year was a notable achievement as the first in the company’s history. The question is, is it overvalued?

Not sure but in the short term, such comments influence traders.

In Dec. 2020, a JP Morgan analyst wrote, “We recommend investors not weight Tesla shares in their portfolio in equal proportion to the S&P because Tesla shares are in our view and by virtually every conventional metric not only overvalued, but dramatically so.”

BNP Paribas analyst Stuart Pearson offered another bearish view. “Never before have the hopes and dreams of entire industries been so concentrated into one stock,” wrote Pearson in a Jan. 5 research report. “Tesla’s strategy is to bet the farm that it can nearly triple its [battery electric] market share while fending off the tech-titans in the race to autonomy. Neither are credible in our view.”

Did this prompt a recent sell?

To sum up, many believe the inflated prices of some stocks are more to do with fads than actual long-term profitability, simply put, you invest in a stock for the long term if you see sustainable steady growth over time.

Whatever the outlook, keep an eye on tweets and if you’re a trader, maybe you will find some opportunities with short term volatility. Although risky, at least with CFD/Forex trading, you’re not actually buying the stock, you’re just trading the movement.

Trading CFD’s or Options involves more risk than buying and selling stock in the long term, trading and investing are different animals.

Looking to practice short term leverage trading, we suggest using virtual money first, there will always be opportunities to trade news throughout the year.

Kyri Kyriacou, over 25 years working for leading banks and brokerages. Focused on providing top-notch trading & investing ideas to our clients.