Tesla: Musk’s share sale caused stock price to fall by 7%

As the US government plans to increase taxes on the unrealized asset gains of the super-rich, and even impose an additional 3% additional tax, one of the world’s richest people, Elon Musk, has been forced to sell some his shares. According to reports, Musk will need to pay more than $15 billion in stock option tax bills in the next few months.

Last Saturday, the Tesla founder started a voting campaign on Twitter, and the results showed that the rate in favor of him selling 10% of his shares reached 57.9%. On Monday, the #Tesla stock price gapped and fell to $1138, below the 4-day low, rebounded to a high of $1196.88 within the day, and then fell again and closed at $1161.02. At present, its closing price is down 7% from last week’s high. This reflects that Musk’s $23 billion sell-off has indeed had a significant impact on Tesla’s stock price, and Tesla’s market value has decreased by nearly 5% to $1.167 trillion.

It is worth noting that the event risk that Musk may still face is the United Nations World Food Program, after Administrator David Beasley called on him to donate $6.6 billion to alleviate global hunger. Although the number is only 26% of the 23 billion US dollars, it is still possible to further trigger a reverse gamma squeeze. This situation means that a drop in stock prices will trigger institutions to buy put options to hedge, and option market makers will need to sell stocks to hedge. Retail investors will also sell like crazy immediately. Eventually, everyone will become a net seller. The company’s stock will experience a greater sell-off in a very short period of time.


Interestingly, the daily price chart shows that the #Tesla share price has experienced a sharp correction for the first time since its rebound in May this year, and the correction happened at the 50.0% Fibonacci retracement level extended from the May 2019 low of 179.44 to the August 2020 high point 2318.51. Therefore, in the short term, considering the negative configuration of technical indicators (MACD fast line is slightly down, RSI and stochastic indicators are turning down in the overbought area), the #Tesla stock price may test the near-term support of $1110. If the selling force intensifies and breaks below this level, the next support to watch is the psychological price of $1,000 or $995 (61.8% Fibonacci retracement level).

On the bright side, strong fundamentals may help support Tesla to resist more short selling. The latest news pointed out that Tesla plans to open a factory in Canada to manufacture cheaper and higher range batteries. Other positive factors include strong vehicle deliveries (the number of vehicles delivered so far this year has reached 627,350, exceeding the total vehicle delivery of nearly 500,000 last year), and higher vehicle pricing (which is expected to offset the challenges brought by the supply chain issues). Additional costs include continuous improvement of fully automated driving systems, a large number of artificial intelligence-related job applications (in the future, Tesla’s products will make a greater leap forward), etc. Therefore, if the #Tesla stock price finds support, the near-term resistance will be $1250 (50.0% Fibonacci retracement level). Breaking this level may drive the bulls up to the August low of last year, at $1,365. The third resistance is the $1460 to $1500 area.

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Larince Zhang

Market Analyst

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