Tesla Stock News and Forecast: TSLA charged up for bear market rally as Musk, Twitter argue over NDA

Tesla (TSLA) stock finally caught a bid on Friday as it rallied to close up at $769. However, this still means the stock is comfortably down in 2022 as high growth names suffer from rising yields and reduced sentiment. TSLA broke our strong $700 support briefly last week, so this rally can truly be called a bear market rally.

Tesla Stock News

The weekend was filled with various hypotheses (yep, word of the day time!) about whether or not the deal for Twitter (TWTR) would go through. The consensus appears slightly in favor of it not going through, but it is a close-run thing. Most polls have the odds at around 55/45 in favor of the deal not going through. This means there is a large amount of uncertainty and a hefty margin of error. Twitter stock recovered quite a bit of ground on Friday to close down only -10% when it had been nearer -20% in the premarket. Investors took the view that something may yet come of the deal but perhaps at a lower price.

Our hypothesis is that the deal is unlikely to get done in the current environment. Things are changing rapidly for financial conditions. They have already deteriorated from when Elon Musk first announced his intention to take over Twitter. There is a lot of leverage involved in the deal and a lot of moving parts and numerous backers and investors. It only takes one or two to get nervous to scupper the whole deal. Things are already getting heated, as over the weekend Musk tweeted that Twitter legal called him to say he had violated the nondisclosure agreement (NDA). 

As is by now common knowledge, Musk is on the hook for $1 billion if he walks away from the deal, but things could get more complicated if it gets legal. This is a serious headwind on both Tesla and Twitter stock in our view. According to a recent CNBC report that quoted Audit Analytics, Musk has approximately $90 billion of Tesla shares pledged for loans. That was as of April 28. 

Tesla rallied on Friday due to hope that the deal may not go through, which would mean less TSLA stock being tied up as collateral. The market finally recovering after a horrible week also helped. Tesla remains a stock for loose financial conditions, and that is not where we are currently and where we are headed. The Chicago Financial Conditions Index below shows things tightening markedly, and yields will continue to spike if this trend persists. We feel it will, but this week should see a reset and relief rally. As mentioned things are moving exceptionally quickly in terms of macro factors right now. The current narrative with higher yields and tighter financial conditions is unlikely to waiver any time soon. The last CPI report has seen to that. Inflation is broadening out into all parts of the economy and away from any transitory sectors into so-called sticky areas. 

Tesla Stock Forecast

For now it looks as if the bottom may be in. Friday saw a powerful and broad-based rally. 91% of stocks closed positively across the New York Stock Exchange. We would not be too surprised to see this rally stretch for another 10%, but then it will get too extended. This week is relatively benign in terms of economic releases or earnings, so it is purely down to positioning and investor sentiment. $945 remains the bearish pivot. Below that level Tesla remains firmly in its current downtrend and will break $700 cleanly. This will then see it down to $620 pretty quickly.

Tesla (TSLA) stock chart, daily

The author is short Tesla and Twitter.