Tesla’s (TSLA Stock) rise

Tesla In (NASDAQ:TSLA) and Wall Street made 2020 the year that the U.S. auto industry decided to go electric.

Tesla’s market capitalization surged above $600 billion, making the once wobbly startup founded by billionaire Elon Musk worth more than the five top-selling global vehicle making groups combined. The exclamation point came on Friday when Tesla rose to a record high in frantic trading ahead of the stock’s much anticipated entrance in the benchmark S&P 500 index (SPX).

For 2021, all signs point toward the industry accelerating its shift toward electrification, a turning point as historically momentous as the launch of Ford Motor Co’s (NYSE:F) moving assembly line for the Model T or General Motors (NYSE:GM) 2009 bankruptcy.

Tesla’s ascent came the same year that activist hedge funds and other investors increased the pressure on corporations to fight climate change. Evidence is growing that more investors have concluded the century-long dominance of internal combustion engines (aka “ICE”) is headed towards a close within a decade.

From London to Beijing to California, political leaders also embraced plans to start phasing out “ICE” vehicles as early as 2030. Pressure to cut greenhouse gas emissions undermines the logic for significant new investments in ICE. Thousands of manufacturing jobs are currently tied to internal combustion in the United States, Britain, Germany, France, Japan, and other countries.

Other powerful forces also shocked the auto industry’s status quo this year. The COVID-19 pandemic stripped away the sales and profits that incumbent automakers had counted on to fund methodical transitions to electric vehicles. China’s rapid recovery from the pandemic exerted an even more powerful gravitational pull on industry investment.

Tesla and S&P 500 Volatility

Investors have been worried that including Tesla’s notoriously volatile shares in the S&P 500 will exacerbate the movements in the broader index, but some analysts say that’s unlikely to happen.

The electric caremaker, which will join the S&P 500 on Monday after rallying nearly 700% this year, ranks near the highest in implied volatility - which is the expectations for stock moves within the options prices - on the index.

Still, analysts say Tesla’ shares will have a miniscule effect on broader market movements. If Tesla had been added to the S&P 500 on Thursday, it would have increased one-month implied volatility on the benchmark index by just 0.15, from 16.93 to 17.08.

According to Christoper Murphy, Susquehanna’s co-head of derivatives strategy, “We don’t think it’s going to have a huge impact.”

Exuberance among buyers of Tesla options has also faded somewhat. Tesla’s skew has turned positive in the past week, according to Trade Alert, showing that speculative demand for bullish call options on the carmaker has eased up in comparison to protective put options.

The Search for Value

Elon Musk on Sunday asked about the possibility of “large transactions” of Tesla’s balance sheet into Bitcoin, according to a Twitter exchange between Musk and a well-known advocate for the digital currency.

According to Michael Saylor, CEO of MicroStrategy Inc, “If you want to do your shareholders a $100 billion favor, convert the $TSLA balance sheet from USD to #BTC. Other firms on the S&P 500 would follow your lead and in time it would grow to become a $1 trillion favor.”

Musk and Saylor exchanged some messages but both didn't confirm or deny any change in Tesla’s balance sheet. In a message to Reuters, Saylor said “Every CEO faces the challenge of how to preserve & enhance shareholder value in the face of this year’s unprecedented monetary expansion. Bitcoin is the best solution to the store of value problem faced by every individual investor, & corporation on earth.”

Technically Speaking

From a technical point of view, TSLA seems to have enough momentum to continue moving higher. It’s currently trading near the $675 resistance level, which it tried to move above, but failed to gain the needed momentum to accomplish this goal.

The 50-Simple Moving Average on the 2-hour chart, is holding the stock from moving any lower playing as the support to beat. The current composition of the stock seems to indicate that more upside is waiting for the index as the RSI (Relative Strength Index) and Bollinger Bands indicate that the momentum still hasn’t faded from the instrument.

Looking at the RSI, we notice that despite the divergence between the price action and the RSI, the upside potential remains quite strong. Now fair warning, there does seem to be some potential for a downward correction, towards the $575, which is the lower bound of the Bollinger Bands and near the 100-Simple Moving Average on the 2-hour chart.

Reaching that price level would be a huge benefit for everyone in mind as the buyers who are waiting for such a drop are going to pounce and drive the price even higher with passive portfolio managers waiting for the stock to be finally added to the index. The upside potential after such a drop can reach towards the $750 and possibly even higher, depending the demand that comes with it.