It took two days for Tesla stock to enter a new bull market. That’s surprising action given some of the recent news, which hasn’t sounded good. But there are a few reasons why the shares are on the rise again.
Tesla (ticker: TSLA) stock has risen about 20% from recent lows. Individual stocks, however, don’t really go into and out of bear and bull markets like stock indexes do. But using the bull market designation is a good way to illustrate just how crazy trading in Tesla stock has been recently.
(A bear market is typically defined as a 20% drop from a high. A bull market starts when an index rises 20% from a low or retakes the old high).
Tesla stock closed up 5.9% at $119.77. It had risen more than 9% earlier in the session. The S&P 500 and Dow Jones Industrial Average fell 0.1% and 0.3%, respectively.
It’s quite a reversal for Tesla given how the stock started the year. Shares dropped 12.2% to start 2023 after Tesla reported weaker-than-expected fourth-quarter deliveries. Tesla delivered about 405,000 vehicles in the final three months of 2022. Wall Street was looking for about 420,000 units.
Shares dropped as low as $103 on Friday, down almost 7% from Thursday’s closing level, after the company cut prices for its vehicles in China.
Shares rallied off the low, however, and closed up 2.5%. Shares kept going Monday, reaching $123.52, up 34 cents from the level of $123.18 at which they closed out 2022.
Tesla stock had turned positive for the year at one point on Monday, up about 20% from Friday’s 52-week low. That’s a “wow.”
There isn’t much fundamental research to point to as a reason for the rally. Wall Street is still concerned with falling prices and demand for the entire car industry. Citi analyst Martin Wilkie, for instance, downgraded Renault (RNO.France) shares to Hold from Buy on Monday.
22V Research senior managing director and head of technical stock trading strategy, John Roque, told Barron’s it could be an oversold bounce.
Oversold is a term traders use to describe when a stock has gone down a lot, possibly too far, too fast. Tesla shares were badly beaten up, down about 75% from 52-week highs on Friday. They are still down about 30% over the past month.
“Might be able to get to $150,” added Roque, who was also the technical analyst saying shares could hit $100 back when Tesla stock was still above $200.
Short covering could help get the stock back to $150. Tesla was a very profitable trade for short sellers—people betting a stock will fall—in 2022.
“Today’s [move] in [Tesla’s] stock price could force some short covering as short sellers look to realize some of the mark-to-market gains,” says Ihor Dusaniwsky, managing director at short-selling data provide S3 Partners. He notes that short sellers added to their bearish Tesla bets early in 2023; closing out those positions involved buying the stock.
There is also the end of tax-loss selling to consider. Tesla stock was down about 65% in 2022. Realizing losses can always be used by investors to offset tax liability from selling winners. It’s another nonfundamental way to view the recent bounce in Tesla stock.
Whatever the reason, the rally is substantial. Tesla stock was the best performer in the S&P 500 and Nasdaq 100 on Monday, according to Dow Jones Market Data.
Barron’s now has some skin in the game too. We wrote positively about the stock on Jan. 6, believing recent declines made the stock attractive despite industry headwinds such as rising interest rates, parts shortages, and a slowing global economy.
Time will tell if that call is a good one. The recent rally doesn’t answer any questions investors have about the economy, competition, or new vehicles coming from Tesla. Investors will hear from Tesla on Jan. 25, when the company reports its fourth-quarter numbers, and again on March 1 when it hosts an investor day.
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