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The Chart of Broken Dreams

Tesla stock has a chart that has not been friendly to many aspiring shorts and even momentum traders. Below are some interesting statistics.

The daily chart shows a multi-year consolidation period between 2014 and 2019.

  • Average drawdown since IPO has been about -18%
  • About 25% of the time the stock has been in a drawdown larger than -25%.
  • Most of the gains from buying and holding the stock have been realized in two of the 11 years since its IPO.

As the yearly chart below shows, 2013 and 2020 have provided the bulk of the gains.

The total return of the stock from IPO to 11/09/2021 is 21,321%. 

Suppose that a buy and hold investor for some (magical) reason missed 2013 and 2020. Then the total return would have been just 454%!

Then, suppose someone for some (magical) reason invested only in 2013 and reinvested all the equity back in 2020. The total return would have been 3,646%. 

The above results show that two years, 2013 and 2020, have made about 8 times the returns of the other nine years.

While during those two years, 2013 and 2020, most shorts received the royal squeeze treatment.

The 12-month moving average price series momentum model shows -3.9% annualized return from 01/2014 to 12/2019. Most other momentum models failed due to whipsaw.

Can we call this the “chart of broken dreams” for shorts and maybe momentum traders (during the long consolidation period)?

In my opinion, if one wanted to generate a chart to squeeze out most of traders this could do it: a staircase-looking chart similar to that of TSLA.

I’m not implying the chart is the result of financial engineering but the Tesla cars are the result of real engineering.

Charting and backtesting program: Amibroker. Data provider: Norgate Data

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