timothy sykes logo

Penny Stock Basics

What You Can Learn from the Latest Tesla Twitter Scandal

Timothy SykesAvatar
Written by Timothy Sykes
Updated 3/2/2021 13 min read

Did you catch the latest crazy Elon Musk tweet? Turns out President Donald Trump isn’t the only one who can move the market with a single tweet.

Last week, Tesla Inc. (NASDAQ: TSLA) CEO Elon Musk posted a now-infamous tweet. He said he thought the stock for his company was priced too high…

… and traders went crazy.

Unlike most of the crazy volatility in the market lately, this pandemonium had nothing to do with the pandemic. Still, it was unprecedented. Nobody had ever seen a CEO talk about their company’s stock like this.

The reaction was swift and powerful: Tesla’s stock price started to coast downhill faster than a speeding Model S.

It just goes to show that social media — and social conduct — can have a huge impact on a stock’s price.

Let’s look at what happened with the Elon Musk tweet and what lessons smart traders can learn from this crazy Tesla crash.

What Happened With Tesla?

tim sykes grand canyon
© Millionaire Media, LLC

On Friday, Elon Musk tweeted in no uncertain terms that he thought Tesla stock was too high. Check out the tweet here.

Don’t know who this guy is? He’s not just the CEO of Tesla. He’s also the company’s co-creator … and its biggest shareholder.

He has every reason to be this stock’s biggest cheerleader.

This wasn’t a leaked conversation. It wasn’t something someone overheard him saying. He posted this publicly on Twitter — to over 33 million followers.

The world took notice fast … confusion abounded. Musk is definitely not your average CEO, but this just seemed crazy. It had people wondering…

Was he hacked? Is he insane? Or is he drunk or high? Is he just being blunt?

I even put out a Twitter poll on the topic and got thousands of responses. Check out the results:

The market’s reaction was fast and furious. Before the tweet, TSLA was trading at around $760.

Shares fell $40 … $50 … $80 … The day’s low was in the $680s. More than 10% down.

TSLA stock chart
Tesla, Inc. (NASDAQ: TSLA) 1-day chart (Source: StocksToTrade)

In a matter of hours, the company lost billions of dollars. All because of a tweet.

So, why’d he do it?

Some say the Elon Musk tweet was a response to detractors who say he just wanted the stock price to go higher … So in Musk’s mind, this response could be an indication that he’s NOT trying to drive up the stock price. And by being honest, he may be vying for respect as a thought leader.

Yeah, he missed the mark. He might want to be a thought leader, but he really didn’t think about the consequences of his actions. Let’s get to the real question…

What Trading Opportunities Did the Tesla Crash Create?

Two in particular: short selling and dip buying.

I was on top of it. Shortly after the tweet, I alerted it in the Trading Challenge chat room:

11:25 AM timothysykes: “If we get a statement soon that Elon Musk’s Twitter was hacked, $TSLA should surge so potential dip buy for me, be ready for any followup news”

11:26 AM timothysykes: “Gotta think like a trader, every breaking news has some potential trade, I have no position yet, just watching, for all we know he wasn’t hacked and is just truly insane”

No, I didn’t trade TSLA after the tweet. But this is a good lesson on why it’s SO important to keep up with news like this. You gotta learn how quickly catalysts like this can move stocks.

An Awesome Moment for Short Sellers

Post image

Get my weekly watchlist, free

Sign up to jump start your trading education!

In the current market, short sellers are like cockroaches — and we have an infestation problem.

I don’t short much anymore. There are just way too many short squeezes and idiots out there.

Last week I shorted Co-Diagnostics Inc (NASDAQ: CODX) … But not because I’m an idiot who tries to short everything that’s up. When a news report revealed that the company had ties to boiler rooms, I saw an opportunity — and made a $570 profit.*

Tesla has plenty of detractors and wannabe short sellers. In the past, the haters have mostly been burned. In fact, earlier this year, TSLA spiked nearly 60% — costing short sellers $8 billion. It was trading like a penny stock!

I’ve gotta admit … this recent tweet was like a gift to short sellers.

If you got in on time, it was a great short. The stock went from the $760s to about $680 in a matter of hours. Even though I hate options, there were some great opportunities there, too.

watchlist banner

However, you had to act fast … Not everyone profited. As my student and Profit.ly user Androo shares:

“After Tim alerted Elon’s tweets, I waited a bit and I shorted Tesla too late a few times into weakness at $700 and covered in the $709s on average. Wasn’t really my setup and I went too big on it so I lost $9k on that one. If I was quicker I would’ve done much better!”

But he learned from his mistakes and reacted fast. Androo continues:

“I cut losses quickly. I even had a small position o/n around $700 and exited p/m for small gain because it wasn’t doing what I wanted. If I didn’t exit quickly I would’ve gotten squeezed thru $740. The meat of the move was Friday from $750 to $700.” 

That’s why my students are the best … If you can learn from your mistakes, it’s not entirely a loss.

Dip Buying

Another way to approach the crazy Tesla volatility? Dip buying.

It makes sense … After all, the company is generally strong. It has a history of rebounding from bad PR. Like when Musk smoked pot on the Joe Rogan Experience and the share price plummeted … Outrage culture is real, and it can move stocks.

If you’d bought at the low on Friday, you’d probably be feeling pretty good right now. As of this writing, TSLA is trading for over $770.

TSLA chart
Tesla, Inc. (NASDAQ: TSLA) 1-day chart (Source: StocksToTrade)

But I didn’t dip buy Tesla — or short it. Here’s why…

Elon Musk’s Tweet: To Trade or Not to Trade?

Why didn’t I trade this infamous tweet?

Too many unknowns. 

This was an unprecedented tweet during an unprecedented market. I’m a glorified history teacher — I like to look for patterns that repeat over and over.

This was a totally new thing. I was hesitant to short because, at first, I was scared he’d been hacked. Shares could have popped right back up if he’d said that was the case.

And I didn’t want to dip buy because I didn’t know where the low would be. The market was down on that day. There could be lawsuits … Yeah, it dropped about 10%, but it could have gone even lower. I don’t like to hold and hope.

So instead of chasing TSLA, I stuck with trades that fit my go-to patterns. Touchpoint Group Holdings Inc. (OTCMKTS: TGHI) was a big percent gainer that was already up 400%.

This was a pattern I know and was prepared for — and I had several wins with it, with a $3,825 profit and a $1,620 profit, both within a few hours.*

(*Please note: my results are not typical. I’ve spent years developing exceptional skills and knowledge. Always remember trading is risky. Never risk more than you can afford.)

Lessons From the Elon Musk Tweet

sykes and kyle williams on laptop
© Millionaire Media, LLC

The major moves following the Tesla share price tweet are over for now. But let’s unpack why the reaction was so severe…

Social Media Can Create Serious Moves in the Market

Elon’s tweet wasn’t modest or self-deprecating. I think it was insane.

He was putting his entire livelihood on the line — and that of all of his employees. It was also disrespectful to investors. It’s like a punch in the gut to people who believe in his company.

There’s no CEO who’s ever said that. They’re practically programmed to be positive about their stock at all times.

This is why I say that as a trader you shouldn’t fall in love with companies. And you’ve gotta be aware of how much sway emotions and sentiment can have on the market.

This tweet is the perfect example of the fact that actions have consequences … Social media, news items, and even the personal conduct of moguls can move stocks in big ways.

History Repeats Itself

Musk’s had some tweeting problems in the past. He’s even gone to court for it.

It doesn’t seem like he’s learned his lesson. But you can learn a lesson from his conduct. When a leader like Musk posts something outrageous on Twitter or other social media, it has the power to create major volatility for a stock.

We’re in a crazy volatile market, but events like this happen all the time. And they can create short-lived spikes. If you want to be prepared for the next time something like this happens, check out my FREE two-hour video lesson, “The Volatility Survival Guide.”

I recently created this guide to help traders learn to make the most of the coronavirus market volatility — but it’s appropriate for any market volatility. Will you be ready the next time something like this happens?

Stick to Your Setups

It might have been tempting to get in on the Tesla action. But when it comes down to it, if you want to be a smart trader, it’s better to stick with setups you know and really get.

Even though there were opportunities, I didn’t trade TSLA. There were just too many plays that did fit my ideal setups … I’d rather stick with those than take unnecessary risk.

One of my top students, Kyle Williams, stayed away too. His reason? “If you saw him tweet early enough to get short then that would’ve been sweet … but it was too out of my strategy to personally take advantage of it in time.” 

Is he feeling the FOMO? Nope. He’s sticking to what works for him, and it shows in his results — he reports making $26,500 in April.*

[*Note that these results aren’t typical. My students and I put in the time and dedication and have exceptional skills and knowledge. Most traders lose money. Always remember trading is risky … never risk more than you can afford.]

Trading Challenge

Wanna be prepared for market volatility like this? You’ve gotta get educated.

My Trading Challenge is based on my 20+ years of trading experience. It’s designed to help traders learn the rules and process and become smart, self-sufficient traders.

I share everything I’ve learned — good and bad. From my personal rules for success to the brokers I use to every single trade … I share it all.

I don’t want loser students. If you just want hot stock picks — move on. I want students who want it, and who are willing to work for it.

There are plenty of resources — like 6,300 video lessons and an incredible chat room community. Are you ready to take the next step in your trading career?

The Final Word on the Elon Musk Tweet

Elon Musk’s recent tweet proves that rich people aren’t perfect. A lot of people are probably pretty angry at him right now!

But if Musk’s tweet teaches us anything, it’s the power of media — social and otherwise — to move stocks. The public reaction to news can be swift. So as a trader, it’s your job to study how the market reacts and be prepared for the next big event like this.

Are you ready to study and be prepared? Apply for my Challenge!

What do you think of Elon Musk’s tweet? If you traded TSLA after it, did you go long or short?

How much has this post helped you?

Leave a reply

Author card Timothy Sykes picture

Timothy Sykes

Tim Sykes is a penny stock trader and teacher who became a self-made millionaire by the age of 22 by trading $12,415 of bar mitzvah money. After becoming disenchanted with the hedge fund world, he established the Tim Sykes Trading Challenge to teach aspiring traders how to follow his trading strategies. He’s been featured in a variety of media outlets including CNN, Larry King, Steve Harvey, Forbes, Men’s Journal, and more. He’s also an active philanthropist and environmental activist, a co-founder of Karmagawa, and has donated millions of dollars to charity. Read More

Post image

Get my weekly watchlist, free

Sign up to jump start your trading education!

* Results are not typical and will vary from person to person. Making money trading stocks takes time, dedication, and hard work. There are inherent risks involved with investing in the stock market, including the loss of your investment. Past performance in the market is not indicative of future results. Any investment is at your own risk. See Terms of Service here

The available research on day trading suggests that most active traders lose money. Fees and overtrading are major contributors to these losses.

A 2000 study called “Trading is Hazardous to Your Wealth: The Common Stock Investment Performance of Individual Investors” evaluated 66,465 U.S. households that held stocks from 1991 to 1996. The households that traded most averaged an 11.4% annual return during a period where the overall market gained 17.9%. These lower returns were attributed to overconfidence.

A 2014 paper (revised 2019) titled “Learning Fast or Slow?” analyzed the complete transaction history of the Taiwan Stock Exchange between 1992 and 2006. It looked at the ongoing performance of day traders in this sample, and found that 97% of day traders can expect to lose money from trading, and more than 90% of all day trading volume can be traced to investors who predictably lose money. Additionally, it tied the behavior of gamblers and drivers who get more speeding tickets to overtrading, and cited studies showing that legalized gambling has an inverse effect on trading volume.

A 2019 research study (revised 2020) called “Day Trading for a Living?” observed 19,646 Brazilian futures contract traders who started day trading from 2013 to 2015, and recorded two years of their trading activity. The study authors found that 97% of traders with more than 300 days actively trading lost money, and only 1.1% earned more than the Brazilian minimum wage ($16 USD per day). They hypothesized that the greater returns shown in previous studies did not differentiate between frequent day traders and those who traded rarely, and that more frequent trading activity decreases the chance of profitability.

These studies show the wide variance of the available data on day trading profitability. One thing that seems clear from the research is that most day traders lose money .

Millionaire Media 66 W Flagler St. Ste. 900 Miami, FL 33130 United States (888) 878-3621 This is for information purposes only as Millionaire Media LLC nor Timothy Sykes is registered as a securities broker-dealer or an investment adviser. No information herein is intended as securities brokerage, investment, tax, accounting or legal advice, as an offer or solicitation of an offer to sell or buy, or as an endorsement, recommendation or sponsorship of any company, security or fund. Millionaire Media LLC and Timothy Sykes cannot and does not assess, verify or guarantee the adequacy, accuracy or completeness of any information, the suitability or profitability of any particular investment, or the potential value of any investment or informational source. The reader bears responsibility for his/her own investment research and decisions, should seek the advice of a qualified securities professional before making any investment, and investigate and fully understand any and all risks before investing. Millionaire Media LLC and Timothy Sykes in no way warrants the solvency, financial condition, or investment advisability of any of the securities mentioned in communications or websites. In addition, Millionaire Media LLC and Timothy Sykes accepts no liability whatsoever for any direct or consequential loss arising from any use of this information. This information is not intended to be used as the sole basis of any investment decision, nor should it be construed as advice designed to meet the investment needs of any particular investor. Past performance is not necessarily indicative of future returns.

Citations for Disclaimer

Barber, Brad M. and Odean, Terrance, Trading is Hazardous to Your Wealth: The Common Stock Investment Performance of Individual Investors. Available at SSRN: “Day Trading for a Living?”

Barber, Brad M. and Lee, Yi-Tsung and Liu, Yu-Jane and Odean, Terrance and Zhang, Ke, Learning Fast or Slow? (May 28, 2019). Forthcoming: Review of Asset Pricing Studies, Available at SSRN: “https://ssrn.com/abstract=2535636”

Chague, Fernando and De-Losso, Rodrigo and Giovannetti, Bruno, Day Trading for a Living? (June 11, 2020). Available at SSRN: “https://ssrn.com/abstract=3423101”