Tesla($TSLA) shares bounced 11% Thursday, from key technical support levels i.e. it's 50 day moving average to close at $366 per share.
Tesla recovered nearly half of its losses from yesterday when its shares fell by a historic 21%
The 21% sell-off came on the back of Standard and Poors decision to not include Tesla($TSLA) in the S&P500 index that would have given the shares regular liquidity from ETF's and Index trades.
Three shares were being rotated out of the index and Tesla was all set to replace one of them. Instead, the outgoing shares of H&R Block (HRB), Kohl's (KSS) and Coty (COTY), were replaced by Etsy (ETSY), Teradyne (TER) and Catalent (CTLT).
This came as a total shock to market participants and they quickly trimmed their position in the stock, resulting in Tesla losing a whopping $16.3 Billion market cap in just one trading session.
But, as you can see from the chart above, Tesla shares found support at the 50 day moving average that was roughly around the $330 mark. A decently low RSI level also helped its price, along with the rally in Dow Jones.
Dow Jones was up aggressively on bargain hunting and some short covering. (or perhaps the PPT or the Plunge Protection Team buying) The Dow 30 index closed at 27,940.47 up by 439.58 points or +1.60%.
Mind you, the US elections are in November and the Trump administration would want a strong stock market going into the elections. The opposition on the other hand would love to see the markets crash as that would dent Trumps winning prospects.
As we get close to the US elections that are scheduled to be held in November 2020, it is expected that the volatility in the market would increase and large moves on either side on a frequent basis could be a fairly normal sighting.
With reference to Tesla, it is the car of the future, and it is leading the Electric Vehicle space by example not just for the US but for the world to see. A lot of people are still very bullish on its prospects despite high valuations.
Investing is mostly done on future potential rather than past performance
As a result market participants keep pouring money in highly priced stocks that hold good earnings and growth potential despite being expensive. Below is a look at some key metrics for Tesla:
Current Tesla PE Ratio: 932 for Sept. 9, 2020
This is ridiculously high but it can go higher on future potential.
52 Week High 502.49
52 Week Low 43.67
YTD % Chg 333.43
What? 333% return. Is this crypto?
EPS 0.39
It would be interesting to see if the rally in Tesla continues or Tesla takes a breather. By the way Tesla has not traded below its 50 Day moving average since April 2020 and its 200 day moving average of $181 is way below its current price.