Short Sellers Making Bank Following Tesla's Technical Breakdown

Tesla, Inc. TSLA shares on Monday tumbled below $200 for the first time since 2016, and there’s little for technical traders to like in the Tesla chart at the moment.

Tesla is one of the most heavily shorted stocks in the U.S. market, and short sellers have been on the winning side of the Tesla trade throughout 2019.

Technical Breakdown

Back on April 2, Benzinga reported Tesla was trading in a bearish descending triangle technical pattern and that a breakdown was likely at some point. That breakdown occurred in late April when Tesla broke below $245 to new 52-week lows following a disappointing first-quarter earnings report.

Since that time, Tesla shares have continued to march lower, dipping below $200 on Monday after Wedbush cut its price target for the stock and said near-term demand and guidance are major uncertainties for Tesla.

Tesla shares bounced off their intraday low of $195.25 on Monday afternoon, but they may simply be closing the gap from Friday’s close before turning lower once again.

For now, traders should be watching the $180 level as the first potential support level if Tesla closes below the psychological $200 level. The $180 level was the bottom of Tesla’s trading range throughout 2015 and 2016. Below $180, $150 is the next region of potential support, the level at which Tesla bounced during the early 2016 sell-off.

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Short Sellers Rejoice

S3 Partners recently reported Tesla has more than $8.9 billion in short interest, or roughly 27 percent of its public float. Year to date, Tesla shares are down 38.8 percent, yet short sellers aren't satisfied. Short interest is up 48 percent year to date, and short sellers seem to think the worst is yet to come for Tesla.

Even accounting for borrowing fees, Tesla short sellers have profited more than $3.5 billion so far this year.

If Tesla is going to get back on the bullish track in the near term, the stock will first need to break back above the $245 level, which has transitioned from support to resistance since the breakdown. If not, Tesla may find itself trapped back in its extended 2015-2016 trading range of between $180 and $280.

At time of publication, Tesla's stock traded around $202.10 per share.

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Photo courtesy of Tesla.