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Tesla’s shorts are facing an uphill battle with Elon Musk

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Short-sellers might be rigorous in their methods, but Tesla CEO Elon Musk hasn’t made it easy to short the stock of his automaker, CNBC’s Jim Cramer said Wednesday.

“There are four fundamental problems that make shorting stocks especially dangerous, problems that are bedeviling these professional pessimists as they confront perhaps the greatest short-buster in modern memory, … Elon Musk,” the “Mad Money” host said.

Cramer spoke one day after Musk floated the idea of taking Tesla private on Twitter, igniting an 11 percent run in the stock and costing Tesla’s short-sellers roughly $1.3 billion. Tesla’s board of directors maintained in a statement on Wednesday that no final decision has been made.

Musk’s $420-a-share price target showed “why it’s so tough to bet against individual companies,” Cramer argued, turning to the first flaw: the notion that Musk did something wrong by opining on his company’s future.

“Musk has every right to say that he has a potential $420-per-share takeover bid lined up, provided that he doesn’t sell stock into the hype,” Cramer explained. “As long as there’s no dump with the pump, it’s arguably a legitimate thing to say.”

“Why not? The SEC doesn’t specifically say you can’t ponder what a company’s worth or whether the company might get a bid,” he continued. “In fact, Twitter’s absolutely … the place to disseminate this possibility.”

Second flaw? The presumption that a government agency like the Securities and Exchange Committee (SEC) or the Justice Department will get involved if something illegal or inappropriate is occurring, Cramer said.

To illustrate this flaw, the “Mad Money” host referenced “When the Wolves Bite,” a chronicle by CNBC’s Scott Wapner of the heated battle between Wall Street titans Carl Icahn and Bill Ackman in the stock of Herbalife.

“This is something that Bill Ackman learned the hard way when he publicly shorted Herbalife,” Cramer said. “Ackman, in desperation, did everything he could to get any federal agency to crack down on Herbalife and put it out of business because of what he saw as some really atrocious business practices.”

“In the end, Ackman lost a fortune because no agency took the bite,” he said.

Third, the short-sellers — whose strategy involves borrowing shares of a stock on the belief that it will decline, selling them and then buying them back at a lower price, thus turning a profit — rely on other sellers to knock their desired stock down.

“Who in his right mind is going to sell Tesla if there’s even a possibility of a leveraged buyout?” Cramer said, referring to Musk’s assertion that funding has been “secured” and a Financial Times report that said Saudi Arabia’s sovereign wealth fund bought a 3 to 5 percent stake in Tesla.

Fourth, Cramer took some inspiration from the words of legendary investor and economist John Maynard Keynes: In the long run, we’re all dead.

“I think Elon Musk can keep the balls in the air longer than the shorts can stay short,” he said. “He could’ve told the Saudis that he’d sell them $2 billion in stock right from the company if he wanted to, right? Then what?”

All in all, Musk’s power to sway Tesla’s investors and secure funding from giants like Tencent for his electric car maker made Cramer believe in his ability to out-maneuver the shorts in the near term.

“You’ve got to understand: Elon Musk is a weird mix of Thomas Edison, David Blaine, and the Punisher. He’s a showman, a visionary, and he’s ruthless,” Cramer said. “I wouldn’t recommend Tesla up here, but you know what? You’d be crazy to short it.”

Shares of Tesla ended Wednesday’s trading session down 2.43 percent, at $370.34. Tesla’s most high-profile short-sellers include Greenlight Capital’s David Einhorn and Kynikos Associates’ Jim Chanos.



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Charts show steady investor optimism, more upside for stocks

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The stock market rally that began 2019 has not yet run its course, even with Tuesday’s Washington-induced surge, CNBC’s Jim Cramer said after consulting with technician Carley Garner.

“The signs suggest that this market can have more upside before the rally exhausts itself,” Cramer recapped on “Mad Money.” “Eventually the market will become too optimistic and stocks will peak, but we’re not there yet.”

Garner, the co-founder of DeCarley Trading and author of Higher Probability Commodity Trading, has an impressive track record. In mid-December, one week before the Christmas Eve collapse and subsequent rebound, she told Cramer that pessimism was peaking and stocks were due for a bounce.

But now that the S&P 500 has gained over 15 percent since those midwinter lows, it’s worth wondering the reverse: what if optimism is approaching its peak?

Lucky for Wall Street, Garner says it’s not. She called attention to CNN’s Fear and Greed index, which uses a variety of inputs to measure what CNN sees as investors’ chief emotional drivers.

Right now, the index sits at 67 out of 100, signaling more greed than fear, but still “a far cry from the extreme levels where you need to start worrying,” Cramer explained. When the major averages peaked going into the fourth quarter of 2018, the index hit 90, and according to Garner, “we usually don’t peak until we hit 90 or above,” he said.

Add to that the fact that only half of professional traders and investors polled for the most recent Consensus Bullish index said they felt bullish; the recent downtrend in the Cboe Volatility Index, which tracks how much investors think stocks will swing in the near future; and that, historically, this is a good time of year for stocks; and Garner sees more momentum ahead.

The S&P 500’s technical charts seem to uphold Garner’s theory. Its weekly chart shows fairly neutral readings for two key indicators: a momentum tracker called the Relative Strength Index and the slow stochastic oscillator, which measures buying and selling pressure.

“Even if the S&P 500 keeps climbing to, say, … 2,800 — up 2 percent from here — Garner doesn’t anticipate either the RSI or the slow stochastic [to] hit extreme overbought levels,” Cramer said, adding that the technician could even see the S&P climbing to 3,000 if it breaks above the 2,800 level.

If Garner is wrong and the S&P heads lower, she said it could trade down to its floor of support at 2,600, and if it breaks below that, fall to 2,400. But that scenario is highly unlikely and, if it happens, would be a buying opportunity, she noted.

The S&P’s monthly chart told a similar story, Cramer said. The index is currently trading at 2,746, between its “hard ceiling” at 3,000 and its “hard floor” of 2,428, he said, which means it’s “basically in equilibrium.”

“To Garner, that means going higher is the path of least resistance for the S&P,” the “Mad Money” host said. “Once the S&P climbs to 2,800, or perhaps … to the mid-2,900s, that’s where Garner expects things will turn south and the pendulum will start swinging in the opposite direction.”

“Remember, … Carley Garner has been dead-right, and the charts, as interpreted by Carley, suggest that this market still has some more upside here,” Cramer continued. “But if we get a few more days like this wild one, she thinks we’ll need to start worrying about irrational exuberance. For now, though, she thinks we are headed higher, and I agree.”



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What Jeff Bezos’ private life means for investors

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Daniel Ek, chief executive officer and co-founder of Spotify AB.

Akio Kon | Bloomberg | Getty Images

Daniel Ek, chief executive officer and co-founder of Spotify AB.

Cramer said Wall Street has misread Spotify‘s latest earnings report and guidance, and that misunderstood stocks like these give investors an opportunity to make some money.

he called out stock analysts like Everscore ISI’s Anthony DiClemente who have downgraded the equity over concerns about subscriber growth.

“I think this is lunacy,” said Cramer, who has been bullish on the music streaming platform since it went public last April. “It’s like the market just doesn’t know how to read this company or its quarterly guidance. In my view, Spotify is very much on the right track.”

The stock was rocked after a seemingly mixed quarterly earnings released Wednesday, Cramer said. After Spotify reported lower-than-expected sales, tight cash flow and conservative guidance across the board including subscriber growth, shares sold below $129 at one point in Thursday’s session.

But Cramer noted that the company beat expectations on operating profit and gross margin, which was 120 basis points higher than was asked for.

“I think the sellers were missing a lot of context here and the context is something I like to talk about a lot and it’s called UPOD. They under promise … and then they over deliver,” he argued. “At this point, CEO Daniel Ek and his team have established a track record of giving cautious guidance—under promise—and then beating it—over delivering.”

Spotify’s guidance includes planned investment costs and the company could “become the premier platform for podcasts,” a hot market for hard-to-reach millennials, Cramer said.

Click here to read Cramer’s full take.



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Charts show investors ‘can afford to be cautiously optimistic’

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Investors can afford to be “cautiously optimistic” at this point in the stock market’s cycle, CNBC’s Jim Cramer said Tuesday after consulting with chartist Rob Moreno.

Moreno, the technician behind RightViewTrading.com and Cramer’s colleague at RealMoney.com, sees a convoluted path ahead for stocks. After calling the December bottom, Moreno noticed that the Nasdaq Composite’s late-2018 decline was about a 24 percent drop from peak to trough.

That’s important because, in a bull market, stocks tend to see “periods of consolidation — pauses in a long-term bull run,” Cramer explained. “To [Moreno], the decline here looks very similar to what we saw from the Nasdaq in 2011, 2015 [and] 2016,” three consolidation periods of recent past.

If he’s right, that could be bad news for the bulls, who may have to wait at least seven months for stocks to break out of their consolidation pattern, during which they tend to trade in a tight range, Cramer warned. But Moreno still sees some opportunity for investors.

“If you believe his thesis about the market — that we’re in a consolidation period, one that will last until September — then you can afford to be … cautiously optimistic right now,” Cramer said on “Mad Money.”

Part of Moreno’s confidence came from his analysis of the S&P 500’s daily chart, which also included the support and resistance levels from its weekly and monthly charts.

Even after a 16 percent rally from its December lows, Moreno saw more room to run for the S&P based on its Relative Strength Index, or RSI, a technical tool that measures price momentum. The RSI, he explained, hasn’t yet signaled that the S&P is overbought, and the Chaikin Money Flow, which tracks buying and selling pressure, shows big money pouring in.

“Moreno thinks that these new buyers are the kind of investors who won’t be panicked out of their positions by short-term volatility,” Cramer said, adding that the technician sees about 3.5 percent more upside for the S&P before it hits its ceiling of resistance at 2,818.

But if the S&P manages to trade above its ceiling of resistance and return to its October highs, Moreno expects a “synchronized reversal” in the stock market that could crush the major averages, the “Mad Money” host warned.

“At least until September, Moreno says you should be a seller if the averages approach their October highs — that’s around 2,930 for the S&P 500,” Cramer said. “Eventually he expects a breakout from these levels, but it won’t happen any time soon.”

So, what’s the right move for investors? According to Moreno, not all is lost. He still expects to see strong gains — a roughly 7.5 percent move — before the current rally peters out. But he doesn’t want buyers to get too trigger-happy, especially considering the months of sideways trading he’s predicting for 2019.

“Until [September], he expects the market to trade in a fairly wide range, with the S&P bouncing between 2,350 and 2,930. For now, we’re headed higher, but he says you should use these key levels as entry and exit points until the consolidation pattern finally comes to an end later this year and the averages resume their long march higher,” Cramer said. “Even if he’s right and this rally will lose its steam after another 7.5 percent gain, that’s still pretty good, but I am very wary and it makes me want to do some selling after this run.”



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