Tesla Under Pressure After SP-500 Snub

Tesla Inc. (TSLA) fell 130 points, or about 26%, after posting an all-time high at 502.49 on Tuesday, battered by a broad-based tech selloff and bull trap following the stock’s 5-for 1 split on Monday morning. CEO Elon Musk’s controversial electric vehicle manufacturer sold off another 6% in Friday’s post-market after an SP-500 committee defied popular opinion, choosing not to add the $390 billion company to the venerable index.

Tesla Share Games

The stock topped out and reversed on Tuesday after Musk tried to capitalize on historic gains with a secondary offering of up to $5 billion. Public offerings typically yield lower prices because they attract less experienced investors while diluting share value, encouraging smart money to step in and trade against them. Along with the recent split, market watchers are shaking their collective heads, recalling similar games in the heyday of the Internet bubble in the 1990s.

The decision will have an immediate impact on buying power because SP-500 membership would have forced tracking funds to buy more than 120 million shares of Tesla stock. Index components must have a market cap of more than $8.2 billion and report four profitable quarters in a row, according to standard accounting principles. The company has come under persistent criticism from skeptics who insist that profits rely on accounting tricks and these alleged practices may have been factored into the exclusion.

Wall Street And Technical Outlook

Wall Street consensus highlights major caution about the long-term outlook, with a ‘Hold’ rating based upon 5 ‘Buy’ and 15 ‘Hold’ recommendations. Ten analysts, or one-third of the total, recommend that shareholders take profits and move to the sidelines at this time. Price targets currently range from a low of just $17.40 to a ‘street-high’ $566 while the stock closed Friday’s U.S. session $126 above the median $292 target.

Tesla may have completed an Elliott 5-wave pattern off the June 2019 low, raising odds for an intermediate correction or bearish change in trend. However, it could be weeks or months before the technical outlook becomes more transparent because, despite last week’s downside, the stock has not broken short-term support levels. That could change if the SP-500 exclusion drops price through Friday’s low at 372 when U.S. markets reopen following the Labor Day holiday.