If Bill Ackman was long was long shares of $TSLA the headline I wrote seems like something he might say (calls for $JCP to go up 10 fold and $HLF to go to zero..) I am not so bold or willing to “jinx myself” by talking so obnoxiously about a position I am in (I own a small call position) but $TSLA does look like it has the potential for an epic squeeze here. Typical of many stocks which attract a large short interest, the company is a controversial one, but that is not our interest. Price action is.

click chart to enlarge

The chart on the left shows the weekly stock action since it came public in 2010.

The daily chart in the middle shows that the prior resistance near 40 acted as support as the stock pulled back, notice how it the stock also held above the rising 10 day moving average.

The third chart on the right shows the intraday action since the gap higher. The purple moving average is the Volume Weighted Average Price (VWAP) since the gap. This price can be viewed as a measure of who is in control (buyers or sellers) since the gap higher. Today, the buyers regained control and that has got to make short sellers nervous.

How would you feel if you were short?

The table below shows the short position currently outstanding in $TSLA (over 31 million shares as of the most recent figures available) Short sellers can be tenacious and fight to hold the stock back, but at some point they reach their pain threshold and repurchase the stock rather than stubbornly hold as the stock continues higher. How would you feel if you were short this stock on April 1st as the stock ran to all time highs? Not one single share shorted before April 1 is in a winning position. The market is a game of supply and demand and those 31 million shares represent a lot of potential demand.

short interest tsla

I expect that the battle between the longs and shorts here will continue to be a real knife fight, but if buyers can maintain control and keep the stock above 42 the heat may be too much for the shorts to take and they may capitulate and cover their position.

This setup has the potential for some big upside from these levels but price targets like 100 are foolish, our job is simply to listen to the message of the market and manage risk on the timeframe which is appropriate for you. Risk Management is job #1!