Tesla (TSLA) joins the S&P 500 after a record day, pullback potential

At the moment, TSLA is a one way freight train motoring north, but there are some signs that the rally may be getting stretched...

Tech (1)

This week marks the first time Tesla Motors (TSLA) has officially been included in the widely-followed S&P 500 index, and based on its price action so far today, index investors are probably disappointed with their new holding.

After hemming and hawing for months, the S&P 500 committee finally agreed to add TSLA to the index last month, with the stock joining the index at a weighting of 1.6%, behind only the major FAAMG stocks (Facebook, Apple, Amazon, Microsoft, and Google (Alphabet). As of writing, the stock is trading down by nearly -6% on the day, subtracting nearly -0.1% from the performance of the S&P 500 as a whole.

So what can traders expect from TSLA moving forward?

Clearly, the company’s addition to the S&P 500 has already priced in, with shares rising fully 60% since the decision was made a little more than a month ago. In a potential last-ditch effort to “frontrun” the inclusion, Tesla’s stock set an all-time record for single-day equity trading volume at $148B on Friday, with more volume in TSLA than in the next 25 most actively traded stocks combined:

Source: Bloomberg

In other words, TSLA is the premier stock for active traders at the moment.

While we’re hesitant to apply historical benchmarks to a stock in the throes of an unprecedented rally, it is worth noting that generally speaking, shares of companies added to major indices tend to rally in advance of the inclusion day before going on to underperform the broader index over the next week or two. As an example, the chart below shows the average performance of 61 stocks added to the S&P 500 from 2014-2016, showing that they tended to rally in the week before inclusion and reverse those gains once they were included in the index:

Source: Signal Plot

At the moment, TSLA is a one way freight train motoring north, but there are some signs that the rally may be getting stretched. For instance, the pair is currently showing a triple “bearish divergence” with its daily RSI indicator, showing less buying pressure on each subsequent high over the last month. Meanwhile, the stock had surged $170 above its own 50-day EMA as of Friday, which mirrors the previous record gap from late August that led to a 10-week consolidation before the latest upleg.

With historical tendencies and the technical indicators hinting at a potential pullback or consolidation in TSLA, bullish traders may want to consider tightening stop losses, while nimble bears could look for price to break below Friday’s low to signal a possible deeper retracement back below $600 heading into the end of the year.

Learn more about equity trading opportunities.

More from Tech Stocks


This report is intended for general circulation only. It should not be construed as a recommendation, or an offer (or solicitation of an offer) to buy or sell any financial products. The information provided does not take into account your specific investment objectives, financial situation or particular needs. Before you act on any recommendation that may be contained in this report, independent advice ought to be sought from a financial adviser regarding the suitability of the investment product, taking into account your specific investment objectives, financial situation or particular needs.

GAIN Capital Singapore Pte. Ltd., may distribute reports produced by its respective foreign entities or affiliates within the GAIN Capital group of companies or third parties pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the report is distributed to a person in Singapore who is not an accredited investor, expert investor or an institutional investor (as defined in the Securities Futures Act), GAIN Capital Singapore Pte. Ltd. accepts legal responsibility to such persons for the contents of the report only to the extent required by law. Singapore recipients should contact GAIN Capital Singapore Pte. Ltd. at 6826 9988 for matters arising from, or in connection with the report.

In the case of all other recipients of this report, to the extent permitted by applicable laws and regulations neither GAIN Capital Singapore Pte. Ltd. nor its associated companies will be responsible or liable for any loss or damage incurred arising out of, or in connection with, any use of the information contained in this report and all such liability is hereby expressly disclaimed. No representation or warranty is made, express or implied, that the content of this report is complete or accurate.

GAIN Capital Singapore Pte. Ltd. is not under any obligation to update this report.

Trading CFDs and FX on margin carries a high level of risk that may not be suitable for some investors. Consider your investment objectives, level of experience, financial resources, risk appetite and other relevant circumstances carefully. The possibility exists that you could lose some or all of your investments, including your initial deposits. If in doubt, please seek independent expert advice. Visit cityindex.com.sg for the complete Risk Disclosure Statement.