Tesla's Volatility Is Becoming Routine
It has become a regular occurence. Nearly every day, someone will ask me, "Have you seen what Tesla is doing? What's driving it?"
They're not talking about the latest marketing move or innovation from the electric car company. No, they're talking about TSLA, a stock that has had an amazing two-month surge: 174 percent. So incredible, many people seem to have lost sight of its volatility.
When Tesla shares dropped more than 13 percent in early trading Wednesday, I received the usual questions: Why is Tesla selling off? What caused the plunge in TSLA?
The truth is, nobody knows for sure exactly why TSLA fell after hitting an all-time high of $114.90 on Tuesday. The drop was so dramatic, Nasdaq implemented a short-selling circuit breaker on TSLA to stabilize trading. It's not a common move, but the exchange has taken similar steps with other stocks, like Apple. Shortly after the circuit breaker was implemented, TSLA leveled off.
A wild two-month run
Tesla's rise was fueled primarily by a profitable first quarter that was better than Wall Street expected. After that earnings report, the company's shares took off. What is often overlooked by many watching Tesla's run is that the stock has been soaring and plunging, sometimes by huge percentages. Take a look at the last 43 trading days.
TSLA pops and drops
- Total number of days with swings of greater than or -5 percent: 14
- Number of days with gains of 5 percent or more: 10
- Number of days with losses of 5 percent or more: 4
- Biggest gain (24.40 percent): 5/9
- Biggest loss (7.31 percent): 4/3
- Average daily percentage change in the last two months: 2.52 percent
Source: CNBC Market Data
TSLA at $100 for good?
Tesla shares have topped $100, and I've heard some people suggest that this is the new reality for the stock—as if the valuation now makes more sense than it did when TSLA traded at $35.
I'm not in the business of justifying Tesla's stock price. It is what it is. However, the suggestion that the company's business outlook is dramatically different than it was a couple of months ago doesn't make sense. Yes, it raised guidance for annual production of the Model S to 21,000 from 20,000, and CEO Elon Musk is also more optimistic about where Tesla is headed.
That said, TSLA is still a volatile stock. And probably will be for sometime. While short interest has basically been cut in half over the last 4 to 5 weeks, this is still a stock many are betting against.