The addition of Tesla into the S&P 500 at the close this Friday will be one of the biggest trading days in history, but it is only the most recent example of an ongoing trend: index managers who make the decisions of what goes in and out of these indexes are becoming increasingly influential.
“Rebalancings have become major trading events because more investors are tied to indexes, so the volume of trading during rebalances has gone way up,” Harry Whitton from market maker Old Mission told me.
Whitton noted that the heaviest days of trading are now typically on major index rebalancings. The S&P 500 will rebalance on Friday, one of four days a year it does so. Friday’s rebalance will likely see record levels of trading activity at the close due to Tesla’s addition to the S&P 500.
In addition to the S&P rebalancing, several major ETFs will also rebalance on Friday, including the Invesco QQQ Trust (QQQ), which is indexed to the red-hot NASDAQ 100, and the Renaissance Capital IPO ETF (IPO), which has been on a tear due to the rush of recent IPOs and recently hit $700 million in assets under management.
Tesla will be the biggest rebalance in history
Because of its size, indexers tied to the S&P 500 are expected to buy roughly $80 billion worth of Tesla to include it in the S&P 500, which means issuers will have to sell $80 billion of the remaining stocks in the S&P 500. This alone would be by far largest rebalancing in S&P’s history: The prior record of $50.8 billion was in September of 2018. Tesla will likely be roughly 1% of the S&P 500′s market capitalization after its inclusion.
Index managers are the new global asset managers
Ben Johnson, head of global ETF Research for Morningstar, says the key takeaway is that formerly obscure index providers are now major players in determining who owns what in the investing world.
“These index providers are much more than just index providers–they are effectively portfolio managers,” Johnson told me. “They’re not asset managers, but they are determining where the money is going through their decisions about who goes into and out of these indexes.”
As a result, the index committees for the major providers — whether they are for S&P, NASDAQ, FTSE, or MSCI — have become extremely influential: “These index committees have become one of the largest discretionary asset managers on the planet,” Johnson told me.
Tesla, Inc., formerly Tesla Motors, Inc., designs, develops, manufactures and sells fully electric vehicles, and energy storage systems, as well as installs, operates and maintains solar and energy storage products.
The Company operates through two segments: Automotive, and Energy generation and storage.
The Automotive segment includes the design, development, manufacturing, and sales of electric vehicles.
The Energy generation and storage segment includes the design, manufacture, installation, and sale or lease of stationary energy storage products and solar energy systems to residential and commercial customers, or sale of electricity generated by its solar energy systems to customers.
The Company produces and distributes two fully electric vehicles, the Model S sedan and the Model X sport utility vehicle (SUV). It also offers Model 3, a sedan designed for the mass market.
It develops energy storage products for use in homes, commercial facilities and utility sites.
Overall, the bias in prices is: Upwards.
Note: this chart shows extraordinary price action to the upside.
By the way, prices are vulnerable to a correction towards 488.78.
The projected upper bound is: 667.44.
The projected lower bound is: 559.01.
The projected closing price is: 613.23.
A black body occurred (because prices closed lower than they opened).
During the past 10 bars, there have been 6 white candles and 4 black candles for a net of 2 white candles. During the past 50 bars, there have been 25 white candles and 25 black candles.
A bearish harami occurred (where the current small black body is contained within an unusually large white body). During an uptrend (which appears to be the case with TESLA INC) this pattern implies an end to the rally as the bulls appear to have exhausted themselves.
During a downtrend the bearish harami pattern is bullish as the bulls appear to be gaining strength as the bears weaken.
A spinning top occurred (a spinning top is a candle with a small real body). Spinning tops identify a session in which there is little price action (as defined by the difference between the open and the close). During a rally or near new highs, a spinning top can be a sign that prices are losing momentum and the bulls may be in trouble.
Momentum is a general term used to describe the speed at which prices move over a given time period. Generally, changes in momentum tend to lead to changes in prices. This expert shows the current values of four popular momentum indicators.
One method of interpreting the Stochastic Oscillator is looking for overbought areas (above 80) and oversold areas (below 20). The Stochastic Oscillator is 51.0107. This is not an overbought or oversold reading. The last signal was a sell 2 period(s) ago.
Relative Strength Index (RSI)
The RSI shows overbought (above 70) and oversold (below 30) areas. The current value of the RSI is 63.85. This is not a topping or bottoming area. A buy or sell signal is generated when the RSI moves out of an overbought/oversold area. The last signal was a sell 2 period(s) ago.
The Moving Average Convergence/Divergence indicator (MACD) gives signals when it crosses its 9 period signal line. The last signal was a buy 17 period(s) ago.
Rex Takasugi – TD Profile
TESLA INC closed down -17.080 at 609.990. Volume was 100% below average (consolidating) and Bollinger Bands were 108% wider than normal.
Open High Low Close Volume 615.010 624.000 596.800 609.990 229,824
Technical Outlook Short Term: Neutral Intermediate Term: Bullish Long Term: Bullish
Moving Averages: 10-period 50-period 200-period Close: 604.68 474.84 297.72 Volatility: 78 70 107 Volume: 48,229,376 39,704,020 69,406,808
Short-term traders should pay closer attention to buy/sell arrows while intermediate/long-term traders should place greater emphasis on the Bullish or Bearish trend reflected in the lower ribbon.
TESLA INC is currently 104.9% above its 200-period moving average and is in an upward trend. Volatility is Our volume indicators reflect moderate flows of volume into TSLA.O (mildly bullish).
Our trend forecasting oscillators are currently bullish on TSLA.O and have had this outlook for the last 16 periods. our momentum oscillator has set a new 14-period low while the security price has not. This is a bearish divergence.
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