Gravity

Gravity is working against me
And gravity wants to bring me down
Oh, I'll never known what makes this man
With all the love that his heart can stand
Dream of ways to throw it all away
Whoa, gravity is working against me
And gravity wants to bring me down
Oh, twice as much ain't twice as good
And can't sustain like one half could
It's wanting more that's gonna send me to my knees
Oh twice as much ain't twice as good
And can't sustain like one half could
It's wanting more that's gonna send me to my knees
John Mayer

Today's note is on Tesla and Elon Musk - If you have had enough of this, skip to the charts.

Elon Musk is a man at war with gravity in so many ways in his life. First, he runs Space X which is the ultimate human expression of fighting gravity. Second, he runs Tesla a revolutionary auto maker that regardless of what happens in the end, he changed the world by sparking an electric vehicle revolution. I've driven every Tesla and they are cool cars but I've also fully done the work looking at the company and stock from the fundamentals to the technicals. When Tesla owners were asked by McKinsey what was their favorite part of driving a Tesla it was clear the acceleration which definitely cheats gravitational forces. They also were asked if another auto maker released an EV what type of brand loyalty would they have and that score was very low. The problems with Tesla are vast. Customer service is atrocious. People have resorted to going on Twitter and Tweeting at Elon which usually goes like this "Hi Elon. LOVE my car, but it's been in the service center for ____ days/weeks and I'm not getting a response on when it will be done or when they will have the parts for the car." There's also a problem with safety. Autopiliot deaths (not approved by regulators but marketed by Tesla) and Whompy wheels (look them up) is something that the regulators haven't been able to fully address for some odd reason. Tesla has had a 10+ year head start with massive Government subsidies and while in the lead with sales due to a lack of other auto maker offerings, they are running out of money and it's news for a $50 billion market cap company when they barely make a $920 million debt payment today. Let's keep in mind, EVERY auto maker has been rigorously developing and testing EV's that are now hitting the market. First mover advantage? Nope not with Tesla.

The next two issues are what I see gravity finally winning the battle over Elon Musk and Tesla. First reality is starting to take hold with high level executives (CFO, Legal Council and many more) have departed ahead of last night's "news" that Elon previewed in the middle of the night a few nights ago on Twitter. The good news is they are going to finally offer a $35k Model 3 which Tesla fans hail as a way to take over the world. The bad news they will lose money on everyone of those cars and the 400,000 reservation holders seemingly are gone as there is only a 2-4 week wait time. This was also the third price decrease on all three models in just two months. Global car sales are slowing and Tesla won't survive even a quarter with demand drying up. Elon last night on a private conference call, bizarrely said Tesla would not be profitable this quarter while raising the high end of delivery guidance for the year. It's peculiar considering the written guidance after earnings were released had one number and Elon said another one on the call within an hour. The final blow will be the SEC banning him from running Tesla. In my opinion he got off very easy from the SEC with his "taking private at $420 funding secured" tweet and then while on 60 Minutes he blatantly insulted the SEC saying "he didn't respect the SEC." And now he recently came out on Twitter with an unauthorized (he has a Tweet nanny) tweet with a pump guidance of 500,000 cars for this year. It was followed quickly by a lawyer induced tweet correction. Elon has until March 11th argue his case with the SEC as they want the judge to hold him in contempt for these unauthorized tweets. His case will be tough to win without some real monetary fine and perhaps more with a corporate leadership ban.

Telsa is Elon Musk and without him it's a $50 billion market cap car company with $20 billion in debt and that market cap is larger than Ford and Fiat Chrysler combined with Tesla producing 250k cars in 2018 while Ford produced 6 million last year. What people need to understand that this is a black or white story as Tesla can't live without Elon and if the stock drops below ~200-250 Elon is highly levered with his Tesla stock he will will get a deathly margin call from Morgan Stanley and Goldman Sachs. He recently took out mortgages on four homes he owns in Bel Air for $61 million. Why would a billionaire need to do that? We'll soon find out!! In my opinion, this is the most important stock story in 2019 and right now it's entering a death spiral. I have a TSLA put spread idea below.

Not much to note in the markets as they levitate and go sideways with the backdrop of elevated sentiment. ISM data was weaker than expected earlier today with the jobs data weak too. Next Friday's jobs number will be watched close. I hope everyone has a great weekend.

Trade Ideas Sheet - Long and short US equity ideas including ETF's. We will be overhauling the Trade Ideas Sheets for long only, short only, ETF's when the new website rolls out soon. There will also be a clearer email distribution with changes.
Trade Ideas Changes: No changes today on sheet but here's a Tesla put spread idea for May. Don't go nuts with size people as it's high risk. Consult with your financial advisor if you do not understand the risks with options. TSLA MAY EXPIRATION: BUY 275 PUT $21.50, SELL 225 PUT $9.00. $11.50 TOTAL RISK. TO ADD MORE RISK: SELL THE 380 CALLS $5.00. LOWERING TO $6.50 - POTENTIAL FOR 7.5X RETURN. AGAIN HIGH RISK, TRADE SMALL.

The PPO Monitor is a proprietary monitor developed to force rank Indexes, Sectors, and Stocks. It ranks top down by strongest to weakest by percentage above/below the 50 day moving average. Shorter term signals can be seen when the 10 and 20 day moving averages turn up (green) or down (red) which often are followed by the 50 day moving average. This is useful to watch for historically overbought/oversold percentage above/below the 50 day moving average. It is non correlated with the DeMark Indicators however we have found upside/downside exhaustion signals often occur when something rises to the top or drifts to the bottom of the monitor - increasing the timing aspect. We share this monitor with clients with Bloomberg Terminals. An added feature is that each market/ETF can be expanded with each component force ranked in the same way. A couple other features include price deviation from intraday VWAP (useful for intraday reversals) and new 20 day highs/lows on right side. Please inquire if you would like to be permissioned to use the PPO Monitor.

Today's highlights: More ETF's under the 10 and 20 day moving average a sign of weakness and rotatation. Bond ETFs hitting 20 day lows

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