T3’s Market Wrap: Let’s Cut Tesla, Let’s Cut Taxes
Tesla (TSLA) took a big hit on its disappointing earnings report, trading down -7.5% to $297.
It’s no secret we think Tesla is a POS company. It was a wise man said “do not bet aginst something the government needs to succeed”. So we never did.
Well that advice has served us well. We were bearish as far back as July 2016 with nothing to show for it and happy we did not play short then. Stories about their fraudulent structure , opportunistic behavior with taxpayer money, crashed rockets, and analyst short recommendations had no effect.
So what is hurting Tesla now then? We think people have stopped buying elon’s bS and unicorn farting rainbow ideas that distract them from the fact that Tesla has no protective moat, burns cash, and has not delivered on its fantastical promises.
The faithful are losing their appetite for kool -aid.
This despite having some good tech is why Elon Musk is just to our sense, a narcissistic manipulative genius in denial.
via t3live.com
And as you can see on the chart below, it’s broken the 200 day moving average for the first time since December 2016.
So what changed?
It’s pretty simple: the long-term vision is broken.
Tesla not only missed earnings estimates, but dramatically cut its forecast for Model 3 production. That means a lot less confidence in Tesla’s ability to go mass market, which is required to justify a $50 billion market cap.
And that’s an important lesson to heed — when a company stumbles in the short-term, investors can quickly get less optimistic for the long-term.
Elsewhere in earnings Facebook (FB) fell -2.5% despite reporting another huge earnings beat.
As Scott Redler said yesterday, Facebook ran up quite a bit ahead of the quarter, which made it difficult to sustain a rally afterwards. Shares actually hit $188 in extended trading yesterday afternoon, but you would have had to be very quick to get out near that price.
Meanwhile, a draft of the House Republican tax plan was released today.
The bill will cut the corporate tax rate to 20% from 35%, eliminate the estate tax, and reduce the number of individual tax brackets.
But the big story was that the cap on mortgage interest deductions would be cut by half. According to the plan, the deduction would be available on loans of up to $500,000, down from $1 million previously.
Homebuilders like KB Home (KBH) and Toll Brothers (TOL) fell sharply as a result.
According to the Tax Policy center, about 21% of tax return filers currently take the mortgage tax deduction. Under the new plan, only about 4% would.
Presumably, homeowners would benefit from other changes in the tax plan, but the price action in the homebuilders made a very loud statement.
As it stands now, the tax plan appears to have little chance of going though without some modifications.
Nevertheless, the US dollar fell today since most observers believe the tax plan would result in bigger fiscal deficits.
As expected, President Trump announced the nomination of Jerome Powell as the next Chair of the Federal Reserve, replacing Janet Yellen.
Stocks are still in a holding pattern.
Earnings season has been pretty strong, and the bears have been unable to land a punch.
This morning, Scott Redler said that “as long as 2565-2567 holds, we can expect a lot of the same. A move and close below there could take things to the 50 day near 2555ish.”
Incidentally, the SPX hit a low of 2566.17 — right in the middle of Scott’s outline support range– this morning, and bounced right off it.
The index closed fractionally higher.
We saw some minor relative strength in small caps, and overall, it was a pretty quiet day.
However, sentiment may be once again getting out of control.
The American Association of Individual Investors released its latest sentiment survey.
According to the latest numbers, 45.1% of surveyed investors are bullish.
This is the highest reading since January 5, 2017.
This number has been depressed all year, and its sudden bounce to a 10-month high may indicate that the general public is convinced the rally’s going to last forever.
So stay tuned for tomorrow morning’s sentiment report.
We may find out that the bulls are back to out of control territory.
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