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Is Tesla stock primed for a short squeeze?

Is Tesla stock primed for a short squeeze?
Kliment Dukovski

Tesla (NASDAQ: TSLA) short sellers have already lost billions of dollars in the past few years. Even Warren Buffett famously said he “doesn’t want to compete against Elon Musk” as he sold Tesla’s competitor shares of the Chinese EV company BYD.

This was a remarkable year for Tesla’s stock price as it gained 120% year-to-date, wiping out over $11 billion in mark-to-market losses for short sellers.

Is another short squeeze coming?

Over $19 billion in volume sold by Tesla shorts

Tesla isn’t as shorted as other stocks in terms of percentage of float — at 2.58%. But the amount short sellers drop on the market is massive. August alone saw $19 billion in volume sold by short sellers.

For comparison, the most shorted stock Edible Garden Inc has a volume of $1.36 million shorted, which is 47% of the float.

Despite that, Tesla’s short-selling volume has been fluctuating throughout 2023. It started the year with $11 billion of short interest and peaked at $26 billion in July. This is still higher than the first half of 2022 when short interest was under $10 billion.

TSLA short interest. Source: MarketBeat

Tesla stock technical analysis

TrendSpider on X identified an island reversal pattern at the bottom around $200. This pattern occurs when two gaps isolate a cluster of trading sessions from the rest, which often implies a price reversal.

Tesla’s stock price has already broken the upper trendline at the resistance price level of $200, confirming the reversal. The price tried to test it once again two weeks ago and now it seems ready to push higher.

However, the stock is now trading in an ascending channel, which typically breaks out on the bottom side. There are exceptions, of course, and we could see the price attempt to take out $300 once again. A break of this level would put the price out of the ascending channel and open the way toward $400.

TSLA stock weekly price chart. Source: StockCharts.com

Hitting $400 would seriously impact short sellers. If they cover their positions, they would put additional buying pressure on the price. Alternatively, we could see even more short sellers join in as we saw in July when the price touched $300.

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Disclaimer: The content on this site should not be considered investment advice. Investing is speculative. When investing, your capital is at risk.

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