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Friday, March 29, 2024

Thrilling Thursday – Futures Bounce Us Back

SPY 5 MINUTEWow, what a ride! 

There was no volume to yesterday's move, which means it can be easily reversed and reversed it is already this morning as the markets pop 0.4% in the Futures (8:15).  As Dave Fry noted: "POMO continues apace and that leads to more dip buying as occurred this afternoon. After all HFT algos understand they still have time to trade before the music stops. Other investors are more cautious."  

Although there’s very little positive in economic fundamentals at home and abroad, Sandra Pianalto said in a speech Wednesday: “In light of this progress, and if the labor market remains on the stronger path that it has followed since last fall, then I would be prepared to scale back the monthly pace of asset purchases.” Part-time jobs aren’t the stuff of real employment growth. You can change all the data you want by manipulating collection methodologies for GDP, inflation and now jobs, but in the end conditions are what they are in reality.

As you can see from our Big Chart, we bounced off a few major lines yesterday and I had called out the 2.5% lines (drop from the top) for our Members yesterday Morning at Dow 15,258, S&P 1,667, Nasdaq 3,602, NYSE 9,447 and Russell 1,038 and only the Russell came really close, at 1,042 while the rest held their -2.5% lines and the Russell finished just a point under it's weak bounce line at 1,045, which is all you can ask for in a day.  

NYMOWhat we look for in bullish reversals is 50% retraces of the 2.5% drops that never happened (make sense?) which, in simpler terms, is 1.25% drops from the top at Dow 15,454, S&P 1,688, Nas 3,650, NYSE 9,568 and Russell 1,052 and, as you can see, that's about where we plowed to at the close – further evidence for us that it's bot-driven action driving the bounce.  

Still, if the bots hold the line, they hold the line.  It's a fake market and you have to accept the fake trading that goes along with it.  What we're more concerned with is how fast we work off that Oversold indicator on the NYMO, as that will give us a nice indication of how bouncy we really are.  If a small move up flips us back to overbought – then a small move is all we're likely to get.  

Original_15059009TSLA is making a huge move up and a lot of it is based on the "fact" that they beat their guidance of selling 4,500 cars by actually selling 5,150 cars in Q2 but, that's based on the FACT that no one seems to remember that TSLA already popped from $95 on June 20th to $133 (yesterday's close) on July 12th, based on the company making this announcement:

They are STILL guiding for 21,000 cars delievered and the fact that they delivered 650 more cars isn't as impressive when it's really just a matter of shuffling the paperwork.  Even stranger, TSLA claims they are now producing 500 cars a day – why then will they not deliver MORE than 21,000 cars for the year – has production peaked out with no improvement forseen over the next 6 months?  

Keep in mind we're short on TSLA, so we're pissed – but we're also long on TSLA – especially the last few trades we made (selling short puts, bull call spreads) as the stock ran over $130 on us.  TSLA delivered 4,900 cars in Q1 so who really thought they'd only deliver 4,500 in Q2?  That's just Musk mastering expectations to goose the stock over and over again.  

Now there is a question as to whether TSLA actually earned 0.20 per $155 share or 0.05 or, as the WSJ sees it, actually LOST 0.26 per share.  Musk's 0.5 figure excludes costs associated with stock compensation, early repayment of a federal loan and costs associated with a lease program.  That, unfortunately, is not what they call "Generally Accepted Accounting Principles" (GAAP).  As noted by the WSJ:

On a GAAP basis, consistent with the way that rival auto makers report results, Tesla said it lost $11.79 million from operations, before interest and taxes, during the just-ended quarter, and burned $78.7 million in cash.

Revenue declined by more than $150 million from the first quarter, mainly because the company deferred some revenue associated with cars delivered under a new financing program designed to mimic a lease.

The purchase/lease financing accounted for 30% of the auto maker's sales in the quarter ended June 30. In addition to the lease change, Tesla received $51 million from selling pollution credits to other auto makers, down from $68 million in the prior quarter.

TSLA's market cap is now $17Bn, if they deliver 1M cars, that's $17,000 per car but, of course, they've actually delivered 10,000 cars, so that's a value of $1.7M per car delivered – that's what you're paying when you buy TSLA stock.  Cut it in half for a full year and we've got a "more reasonable" $850,000 per car delivered or 10x sales or, if we assume they make $100M somehow by the end of the year – then it's "just" 170 times earnings.  

In light of these spectacular earnings, Goldman Sachs, like me, have raised their price target to $95 (from $84):  "One critical item for us that remains less clear is demand. While much of the company's valuation is based on the Gen 3, the Model S is the litmus test the market has over the next several years. That the company's target sales run-rate of 40k units for late 2014 embeds a 20K assumption for N America, (essentially unchanged from the NA run rate today) is a weaker signal on domestic growth than we would like to see even if the company is being conservative," they added.  Goldman modified 2013/14/15 EBITDA estimates to $181mn/$423mn/$669mn from $69mn/$267mn/$460mn.  

Meanwhile, we'll have to scramble to adjust our bearish plays but It's also a fantastic morning to make new ones – if you believe in math…

 

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