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S3 Partners: Longs, Not Shorts, Are Selling Tesla

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Tesla, Inc. (NASDAQ: TSLA) stock tumbled 7.8 percent on Friday after CEO Elon Musk announced a lower-cost Model 3, said Tesla would not be profitable in the first quarter of 2019 and disclosed that Tesla is closing most of its brick-and-mortar stores.

The outspoken and controversial Musk has often lashed out at short sellers for betting against Tesla, but one analyst said Friday’s selling wasn't coming from the shorts.

Shorts Holding Ground

Financial technology and analytics firm S3 Partners analyst Ihor Dusaniwsky said Tesla investors can’t blame short sellers this time.

Tesla’s outstanding short position is around $8.22 billion, the third largest among all U.S. equities. Despite the huge 7 percent sell-off on Friday morning, Dusaniwsky said the size of Tesla’s short position didn’t change much. He said the relatively modest increase in Tesla short selling on Friday morning was negligible compared to the 14 million in volume that drove the price drop.

“With short sellers pretty much standing on the sidelines with a Cheshire cat grin on their faces, it is long shareholder selling that is driving Tesla’s stock price down,” Dusaniwsky wrote in a Friday report.

So far in 2019, Tesla’s outstanding short position has been relatively stable, increasing by only 0.5 percent overall. Dusaniwsky said the chances of a Tesla short squeeze in the near future appear “slim at best.” Tesla short sellers netted $660 million in profits on Friday morning and are collectively up more than $1 billion so far in 2019 after losing about $1.4 billion in 2018, Dusaniwsky said.

Technical Difficulties

Tesla shares have been trading in a relatively narrow range between about $280 and $320 for the past six weeks. On Thursday ahead of the Musk announcement, the stock tested and failed to breach $320 on the same day a bearish death cross in the 50-day and 200-day simple moving averages occurred in Tesla’s chart.

The stock closed Friday at $294.79 per share.

Following Friday’s sell-off, Tesla shares are down 15.9 percent in the past three months, while the SPDR S&P 500 ETF Trust (NYSE: SPY) is up 1.7 percent in that same time.

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