A PLAIN MAN’S VIEW OF TESLA’S STOCK ACTION OVER THE LAST FEW WEEKS

Let us take a simple look at what’s going on :

1. For the last several weeks a whole gaggle of hedge funds have been accumulating TSLA shares

2. Their first purpose is to make a profit by selling those shares to S&P Index funds after an announcement of inclusion

3. So far their buying has driven the price up from $280 to as high as $540

- and this has also drawn in a lot of new and eager retail investors with FOMO

4. This already represents a good profit for the Smart ones who got in early

5. At this point they can see the possibility of “cornering the market” in Tesla shares because there is obviously so much buying demand, with more Dumb hedge funds and new retail investors jumping in

6. Tesla is not stupid and they are watching all of this going on

They have just split their shares to improve the pricing and access for their employees and small retail investors

And they have no reason to allow the S&P action to drive this speculation in their stock

7. They can see these speculative players moving in for a “long squeeze” that could cause a huge short-term spike in the stock like this

- which could be very damaging to ordinary investors who buy on the superheated rise that a “cornering the market” squeeze could bring

8. So Tesla signals the hedge funds that they are going to ensure there will be an orderly market and no shortage of their shares for real buyers

And they show just a small amount of new supply as the warning signal

- just around 1% of the total shares outstanding

9. This is not a “ready” signal to the S&P although it can be reassuring to them

This is a warning signal to the speculative hedge funds who were going to lock up their TSLA shares to make the “long squeeze” work

It basically tells them that TSLA will not let that game play out

10. The 1% or $5 billion stated in the SEC filing is peanuts

The hedge funds would not be deterred by that alone

But Tesla’s fire power in this game is essentially unlimited

They could easily do 10% or $50 billion

And the ease of making an 8-K filing shows that they are ready

11. The hedge funds now risk seeing the inflated price collapse around their feet before they get even get a chance to sell their “cornered” shares

So Tesla is saying “don’t try it, buster . . . don’t even think about it . . . or you’ll make my day”

- classic Clint Eastwood

12. The best outcome is that the hedge funds get the message and start unwinding without having to be told anything more

- and in fact the Smartest of them did that starting yesterday with some more joining today

- see the major exits

- and they are taking really good profits

13. But Dumber ones also moved in quickly to buy their seat as you can also see

- so we know that there are still “greater fools” out there who are still buying into a short-term game at $475 and $420 that was only worth buying into at $300

14. And so at this other extreme the Dumb hedge funds could still try to play the game out even though they have been signalled “offside”

- in this extreme case Tesla can unleash something like $50 billion of new shares to real buyers in front of them and stop their stupidity

15. After everything calms down Tesla will then have a huge Cash pile and can easily go into the market and buy back those excess shares at a lower price and retire them, thus bringing the number of shares outstanding back to where we all started

16. The middle case is that Tesla ends up issuing the ~1% or 10 million shares that has been notified . . . but I think it is unlikely that they will need to

17. IMHO the likelihood of an extreme case “Nuclear Option” has receded in the last 24 hours

- but we will just have to see how Dumb the remaining hedge funds want to be

- the Smart ones will likely have left the party by the end of this week

18. At this point it starts to become entertainment for the rest of us and we are best off just stepping back to watch and see

- as this is not likely to be a safe place for smaller investors to try and be active, before the storm of uncertainty has passed