As the battle between Tesla’s bulls and bears rages on, financial and social media platforms are abuzz with discussions. However, it appears that the number of true bulls may be significantly lower than what investors believe. This becomes apparent when examining the stock’s trading patterns.
Following better-than-expected second-quarter earnings, Tesla (ticker: TSLA) experienced a 9.7% drop in its stock price. Interestingly, this drop mirrored the previous first-quarter dip when profit margins declined due to substantial vehicle price cuts.
While a single-day fluctuation is not reason enough to doubt the existence of true bulls, the trading volume raises eyebrows. On Thursday, approximately 173 million shares of Tesla stock were traded. The volume-weighted average price (VWAP) for the stock that day was $269.72. This means that roughly $47 billion worth of Tesla stock changed hands following the release of the earnings report.
To put this into perspective, the value of these traded shares accounts for over 5% of the company’s total market capitalization. Furthermore, it represents more than 6% of the market capitalization when excluding the stock held by CEO Elon Musk, who trades less frequently. In comparison, Apple (AAPL) recorded a much smaller figure of about 0.4% on Thursday.
It is important to note that the disparity is not due to the content of the earnings report itself. On any given day, Tesla typically trades at around ten times the dollar value of Apple. This implies that Tesla’s entire market capitalization is turned over every 20 to 30 days, or approximately once a month excluding weekends. In contrast, Apple’s market capitalization turnover occurs just once a year.
In simpler terms, investors hold Tesla stock for an average of 25 trading days, or roughly five weeks including weekends. Theoretically speaking, no one holds Tesla stock for more than a month. While there are certainly long-term holders, factoring them in reveals an even shorter average holding period, excluding Musk and these long-term investors.
This analysis sheds light on the unusual trading patterns of Tesla stock and raises questions about the true extent of bullish sentiment.
Tesla’s Unique Trading Volume
Tesla’s trading volume and value have always been unconventional. Analysts and experts have tried to decipher the phenomenon, but it remains an enigma.
Katie Stockton, the founder of Fairlead Strategies, states that Tesla is adored by traders, while Apple enjoys the favor of investors. Stock market analysts who specialize in technical analysis often find themselves surrounded by traders in these situations.
In terms of volatility, Tesla’s beta compared to the S&P 500 is approximately 1.6, whereas Apple’s beta stands at 1.1. Beta is a measurement of volatility relative to a market or an index. A beta of one implies that if the market rises by 1%, a stock with a beta of one will also increase by 1%. Stockton remarks that higher volatility tends to attract short-term investors.
Managing volatility around a portfolio position is one approach even long-term holders can adopt. Another strategy is to maintain a position and endure the market fluctuations. Over the course of many years, this has proven to be the superior approach.
As of early trading on Friday, Tesla stock has increased by 1%, while S&P 500 and Nasdaq Composite futures have risen by 0.3% and 0.5% respectively.