Tesla has been on a massive bull run, soaring over 900% from its March lows of $72 to $660 today.
On the 16th December, it was announced Tesla would be included in the S&P 500. Tesla became eligible to be included in the S&P 500 after posting its fourth consecutive profit in the second quarter of this year, though Tesla has joined until now.
Typically how this works is when a stock is added to the index, another company comes out. The market cap of the new company is usually larger than the exiting one. Since the S&P 500 index is market cap weighted, the weightings of all the other stocks need to come down to make room for the new company.
Tesla will enter the S&P 500 as the 7th largest stock. This has never occurred before.
According to S&P Tesla’s addition to the S&P 500 will be based on the closing prices of Friday Dec. 18, coinciding with the expiration of stock options and stock futures, which should help facilitate the addition because of the high trading volume.
Basically funds that are benchmarked to S&P need to have Tesla "in their books" on coming Friday's closing price.
This event has also occurred with TSLA touching the top of a 10 month price channel. The 50 day moving average and the lower supporting trend line of the parallel channel is some way away.
TSLA has run up 60% on the news of S&P 500 inclusion. TSLA ran up 80% on the news of the stock split back in August and then fell 35% in the next 4 trading days.
Price movements in TSLA are likely to be heavy and dynamic. Could TSLA see some downside as it takes a breather?