We know that there is a general information regarding an upcoming recession due to the impact of virus outbreak and slowed economy.
We also know that most of the low skilled and middle skilled working jobs are increasing due to recent quitting shock.
There is also a major blank in the economy due to 3 stimulus payments and not able to recover in the following year.
However, S&P crossed all time high during this period. Why is that?
There are some informations we know right now.
- The lockdown increased the number of work at home jobs, mostly include programming and editorial work. This factored in influence and the advertising effects on people for opening a trading account
- During the lockdown the 3 stimulus relief checks has been passed which increased the investment of present and new investors in the market. We can assume that the internet advertisement on trading and investments motivated maximum number of people to invest in the market.
- During lockdown, people tend to move more towards the new strategy to earn, which influenced their decision more towards the trading and investing in stock market.
- We can also assume that those who are relatively new to investment on S&P generally goes for the long buys on stocks or mutual funds. It is very rare that people goes for options in the beginning of their investment.
Due to these conditions we are safe to assume that large amount of money flushed in to rescue the market during the start of recession around March 2021 that I expected to happen in my posts during august 2020.
what can we assume with the current state of market.
- Those who had bought in on long term positions from 2020 had gained knowledge of the options and most people are likely to take investment on options.
- The outbreak of new strain of delta will be going to influence their decisions on the position they take on the market/stock.
- Big corporations have economist who also predicting this recession and ready to dump their positions on the market.
- The corporations/institutions need to have a perfect demand of stocks in the market before dumping so they won't suffer loss due to price fall with excess stocks than demand.
Due to these assumptions what we can expect is that the corporations will create shortage of stock in market by buying them and increase their positions on stocks.
Thus we can safely assume that the market will go in bullish more for several months crossing ATH again.
How the $Tesla(TSLA.US)$ stock factors in for this decision.
- Tesla stock crossed all time highs since 2018. The stock grown too much compared to the institution's activities, profit and actions.
- Tesla is marked overbought by almost all the indicators and have crossed even the normal overbought levels.
- Tesla options are available almost all the possible trading platforms, even the international ones. Some platforms like etoro etc offers high leverage buys and sells on tesla.
- Tesla is the prime target on most hedge funds and experienced traders in wall street.
- Many new traders who gained experience during pandemic and lockdown have experienced the increase of tesla first handedly, which make them prone to the decision we are going to reach.
With the above assumptions we can safely say that most hedge funds and traders are going to take a negative action towards tesla stock, that is buying puts and shorting the stock more than other like in the same way as 2020.
above graph shows that $38 billion was lost by short sellers of the stock when the stock surged. Swallowing all the negative positions on the stock. Similar to the gamestop incident. when people buys puts the mostly company hedges the position by buying 100 shares against it before the closing, if the calls and puts are not normalized(my current working research). Thus, having to buy the stock at any higher available price causing a surge.
This time too I assume that due to the threat of delta variant there will be an influence on many funds and people's decision on shorting stocks and buying put, this will be in a magnanimous amount, because of a general knowledge of recession and overbought of tesla. My assumption is people and hedge funds will not only buy the puts but also will sell calls till the highest value possible. This will repeat at every intervals when the market slow down or dips a little. This will cause a similar incident to the Gamestop stock causing a massive surge on Tesla stock above $2000(A complete x10 value, most likely a stock will cross over a x10 value whenever it is close to it. for example if the stock is at 38.5 it is likely to cross 40 etc.)
This is just a hypothesis, it is also possible that market will fall into recession and instituions will lose all their money to people who shorted( this is very unlikely). But even in casino, there is a rule that "the house always wins". This is the exact scenario in real world where the institutions and funds always win and the losers are people. Thus, we can only win in this game by predicting the unpredictable. Which in this case is most likely tesla crossing the $2000.