Tesla stock “is oversold” and that’s “a big clue” to the market, strategist says

Interactive Brokers chief strategist Steve Sosnick joins Yahoo Finance Live to discuss how Tesla faces as Elon Musk focuses on running Twitter, how China’s COVID-19 lockdowns affect Apple stocks and the outlook for the markets.

Video Transcription

BRAD SMITH: We’re looking at some big calls on Tesla this morning. Shares of TSLA are moving pre-market here. Morgan Stanley says Tesla offers a buying opportunity as it approaches analyst Adam Jones’ bear case – Jonas’s bear case, excuse me – a $150 price target. Citi, meanwhile, is improving inventory from selling to neutral as it competes in the long run. Let’s bring in Steve Sosnick, Interactive Brokers’ chief strategist for all things technology and Tesla. Steve, nice to have you here with us on set.

STEVE SOSNICK: So good to be here, Brad. Absolute.

BRAD SMITH: So when we think about Tesla and where the stock has continued to move due to Musk’s attention that he’s now also posted on Twitter what do you suspect as maybe the next or do you expect the next big shoe to drop over is on Tesla? And have we seen some of the bottoms yet?

STEVE SOSNICK: I think we’ve seen a big — of course we’ve seen a big drop. The problem is that Elon Musk has always been spread very thin. He already had a car company and a rocket launch company. And now he runs a social media company. And it seems pretty obvious that he spends a lot of his time on social media. Can you think of another CEO who spends so much time on social media? You really can’t. That’s a big part of his personality. That’s probably what has done a lot to boost Tesla.

BRAD SMITH: That’s their marketing engine at Tesla.

STEVE SOSNICK: Absolute. But at some point you start wondering, A, what has he done with the Tesla brand? Because he’s been so mercurial. And B, can he concentrate on all these things at once? Can one man do it? And I think the market is saying no. The other issue also remember is to think about the run it had from 2020 and 2021. So we returned a tremendous amount of profit in the stock but we’ve got a long way to go from where we started just a few from years ago.

JULIE HYMAN: And it’s interesting that there’s a call today because it mostly has to do with it, that it’s come down enough, that it’s priced in some of those concerns that you talked about, which are obviously broadly shared by the market. And with Adam Jonas saying Tesla hits its bear case price of 150, it got me thinking about these kind of big market slumps that we’ve seen, and when, written widely, we have people coming back and saying, OK , that’s enough. I mean, we’ve had little blips of that.

STEVE SOSNICK: Well, from a long-term perspective, the stock is oversold. Speaking as an old trader, this is oversold. This is when you tend to intervene. I find it interesting that he intervenes rather than bribe his bear case, rather than actually at the target bear case. But I’m thinking preemptively, and he sees the same stock action I do. So I guess he realized it’s probably not a bad place to get in either.

But so that’s, for me — in the notes earlier this morning, the exchange, it’s, why do I see this as a big lead for the market? It’s too big not to be a great storyteller, for the same reason Apple is too big not to be a great storyteller. Tesla is a top 10 company and weighs heavily in NDX. And it’s a big reason why NASDAQ has performed so well because it got supercharged. And you also have a lot of people, institutionally and individually, who are heavily invested in the stock. And it made them, and now it’s at risk of being a really big drag.

JULIE HYMAN: So if it turns around and starts moving higher in a more substantial way, is that a leading indicator for the rest of the market?

STEVE SOSNICK: Yes, because I’ve always felt that Tesla has, to some extent, a good understanding of retail sentiment, the sentiment of individual retail investors. It’s a sexy name for so many people. And that — yes, it got into the S&P 500, which gave it a big boost a few years ago. But the number of individuals that have come into stock, it’s such a popular one. We’ve seen it with so many other stocks that are popular with individual investors. This kind is the most important domino there is.

BRIAN SOZZI: Steve, you mentioned Apple. And of course, Apple is always a very important stock, but now, when it comes to earnings, is Apple the most important stock in the entire market, largely because of what we’re seeing with these Chinese COVID cases? These COVID cases in China are now starting to increase. It seems to be increasingly affecting Apple’s results. Apple is probably not alone here.

STEVE SOSNICK: Well, that’s really the key. Apple, as I said, since Tesla is too big to ignore, Apple is the largest stock in the index. And so everything they do carries a lot of weight. Apple is unique in many ways because it is global. It’s a consumer stock. But it is a utility in many ways. I mean, you know, I pay Apple a few bucks a month for all sorts of things, whether I’m paying attention or not.

BRIAN SOZZI: But if Apple gets hit, if we get more lockdowns in China, is that a sign that the rest of the market could take a hit by the end of the year?

STEVE SOSNICK: Yeah, because I think one of the reasons that’s helped sentiment, especially in industrial stocks and things like that, is the idea of ​​China opening back up. We’ve seen huge amounts of call buying in Alibaba and things like that, the Chinese are playing in the US. And so I think if there’s another wave of lockdowns in China that really turns that narrative upside down. It turns the global growth potential on its head. And so, yes, Apple could be the canary in the coal mine because of that situation.

BRAD SMITH: Who are some of the other canaries in the coal mine that you would look into?

STEVE SOSNICK: I’m looking at retailers now. And I know this here is in the way of Brian’s wheelhouse.

BRIAN SOZZI: Don’t start with Kohl’s. I can not do it. I need a day off from Kohl’s.

STEVE SOSNICK: I actually have Kohl’s.

BRIAN SOZZI: No, you own Kohl’s stock or a pair of…

STEVE SOSNICK: I actually bought a…

BRIAN SOZZI: Steve, we’ve always been friends.

STEVE SOSNICK: I know.

BRIAN SOZZI: We’re not here anymore.

STEVE SOSNICK: I recently bought it on the idea–

BRIAN SOZZI: Did you buy it recently?

STEVE SOSNICK: A few months ago.

BRIAN SOZZI: Why?

STEVE SOSNICK: Out of stock. Dead stock.

BRIAN SOZZI: Just a trade? It’s just a trade?

STEVE SOSNICK: Just a trade.

BRIAN SOZZI: Not a fundamental thing?

STEVE SOSNICK: No.

BRIAN SOZZI: OKAY.

JULIE HYMAN: Don’t get emotional. That’s what he always says.

BRIAN SOZZI: We’re still friends. Okay, we’re still friends.

STEVE SOSNICK: But think about how the retailers… how some of these retailers have been acting lately. Walmart, Macy’s, Best Buy – you’ve looked at them countless times. The question is, are expectations that bad? Are things that good? And private individuals, customers of the future, borrow to pay for current purchases? You know, I think a big part of Walmart’s success was, as you know, groceries and people moving from Target to Walmart, let’s say. That cannot go on indefinitely.

And we’re starting to see credit card usage rise. So I think another big tell-tale would be Mastercard, Visa. If people borrow for this to pay higher prices in these shops, it is not really sustainable. If the economy is really much better than we thought and these are sustainable rallies, and we continue to monitor them, then we move on. I’ve always felt that retail plays a big role in the market. Consumers are still the largest part of the economy. And what do they do? They spend money, and retailers are one of the places where they spend money.

BRIAN SOZZI: Just not with Kohl, Steve. Not with Kohl.

STEVE SOSNICK: OKAY. [LAUGHS]

JULIE HYMAN: There is one area that is probably no longer indicative of what retail investors are doing. And that’s crypto, right? Because of what happened. I don’t know if you heard the discussion we had a few moments ago. Does what happened to FTX mean that crypto as an investment space is unreliable? Because Bitcoin doesn’t seem to trade like that is the perception. I mean it would be…

BRIAN SOZZI: You try [INAUDIBLE].

JULIE HYMAN: It would be nothing. It would be nothing, right?

BRIAN SOZZI: I see what you’re doing.

JULIE HYMAN: It would drop even more, wouldn’t it?

STEVE SOSNICK: Well, there’s a lot to unpack, even in a relatively short question. I find it interesting because the whole ecosystem is based on, how can we do this without trust? You know, unreliable, and the systems should give it confidence. Well, the systems still have to… they still intersect with the real world at some point. And that’s where confidence comes into play again.

It is heavy. It’s hard to see someone say during their Thanksgiving dinner, I think now is the time for me to get into crypto. You’re either in or you’re not, especially if you’re an institutional adopter. Now are you going to say, you know, geez, now is the time to really get myself into crypto with my investment funds? No, you can’t appear before an investment committee and say that for the most part.

As for why it didn’t drop, I have two theories. Number one is that many people would like to sell and they can’t because their crypto is locked up at FTX or one of the various locations where…

JULIE HYMAN: It’s frozen.

STEVE SOSNICK: –it’s frozen, so you can’t raise your money that way. Second, remember, crypto has… it’s still dominated by a small group of whales. And–

JULIE HYMAN: And MicroStrategy doesn’t sell its crypto, we know that.

STEVE SOSNICK: And wouldn’t you be too, if you were MicroStrategy… I don’t know what they do, but wouldn’t you be incentivized to buy? Because if it drops much further, you already have pretty much negative equity on your books. MicroStrategy is essentially one huge crypto command. Called 30,000 or so is where the strike price is. And that strike sort of went away — you know, now that strike is about 100% out of the money. That’s a tough place to be in. You don’t want it to go any further, especially if you have convertible bonds that have yet to be paid.

JULIE HYMAN: I mean, even if you’re not a whale, even if you can get your money out, you want to sell at this kind of loss if you bought 20,000, 30,000, 40,000…

STEVE SOSNICK: Well, that’s the…

JULIE HYMAN: –Bitcoin for example?

STEVE SOSNICK: However, the whales own it for 100, 200.

JULIE HYMAN: Yes, exactly.

STEVE SOSNICK: You know, so it’s a different perspective.

BRIAN SOZZI: Steve, very fast, favorite side of Thanksgiving. Slap me.

STEVE SOSNICK: Pureed turnips.

BRIAN SOZZI: Pureed turnips, great. Okay, Steve Sosnick, chief strategist at Interactive Brokers, always good to see you. Happy Thanksgiving.

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