This isn’t going to be well-received by fans and followers of Tesla Motors Inc (TSLA), but Tesla stock has likely hit a near-term top and is now ready to dish out a sizeable pullback.
But will the impending debut of the Model 3 continue to propel TSLA, adding to the 68% rally Tesla stock has already mustered since its early-February low? It’s possible.
But if history repeats itself, this highly contested stock is poised for a dip driven by the back-and-forth bullish rhetoric that Tesla Motors so easily creates. Or perhaps it’s a classic example of “buy the rumor, sell the news.”
Whatever the case, TSLA is poised for a bout of weakness, and it shouldn’t matter in the least to the true long-term Tesla bulls.
Tesla Stock: Calling a Spade a Spade
Few want to acknowledge it, but ownership of Tesla stock isn’t an investment in an electric car company. It’s a bet. The premise of that bet? That being the leading electric car company will eventually mean Tesla Motors becomes a viable business.
It’s also a bet that the chatter and commentary surrounding TSLA will remain bullish. It’s this facet that’s been pushing Tesla stock around, up and down, since 2013 when the company first began mass production of its Model S.
The weekly chart of Tesla stock below tells the tale. Even when traders were falling in love with Tesla in 2013 and 2014, it went through bouts of bearish pushback. More important right now, as of the middle of last year, the ebb and flow has transitioned from a net-buying one to a net-selling one. And Tesla stock has not logged a lower major low and lower major high.
Tesla stock has doled out bigger runups than the 68% ascent currently underway. It did it in 2013 and then again in early 2014. That was still in the honeymoon period, however, and euphoria was still strong. That euphoria isn’t in a position to repeat the feat again now.
Zooming into the daily chart of Tesla stock we can see something else alarming about this rally effort: Volume is fading on the way up.
The rally certainly got started with a bang in early February, but the bullish (green) volume bars have been getting increasingly shorter ever since that pivot, suggesting fewer and fewer investors are interested the higher it goes. Rallies that last tend to gather more and more buyers on the way up.
But the Model 3 is a game changer? Not so fast.
Reality Check
Giving credit where it’s due, Mathew DeBord of Business Insider may have best described the situation — the tug of war between Tesla Motors as a company and Tesla stock as a premise — when he recently explained:
“Tesla-topianism has been a tough virus to eradicate. Every time you think Tesla watchers, particularly in the finance industry, have figured out that the automaker is becoming a real car company (not a go-go growth tech company), those Tesla watchers crank up some new narrative that has Tesla doing something monumentally awesome that alters reality as we know it (that’s why the Apple analogies come fast and furious).
But then you look at the facts. For example, Toyota sold over 9 million vehicles worldwide in 2015.
Tesla and Musk could move humanity forward in terms of eventually retiring the gas-burning engine. But against staggering numbers like that, it will take Tesla decades, if it survives, to have a meaningful impact. And adding one new car to the portfolio isn’t going to speed things up.”
That’s why Tesla stock has been more of a trade than an investment since its beginning … a trade designed to figure out how traders are going to respond to the news rather than an investment in the company’s (net) fiscal success.
And that’s why Tesla stock has behaved rather predictably since 2013, rising and falling more or less in a pattern. While a company’s success tends to be linear, TSLA — the stock — isn’t about success. It’s about the rhetoric, which is cyclical rather than linear. That’s what should spook short-term owners, here in the shadow of a 68% advance made in just six weeks.
Bottom Line for Tesla Stock
While Tesla’s poised for a near-term pullback regardless of the upcoming unveiling and pre-ordering of the Model 3 (the “buy the rumor, sell the news” concept applies), as was already noted, any pullback from here doesn’t really matter to actual investors who are in it for the long haul.
Then again, DeBord’s timeframe was spot-on in regards to how long investors need to be prepared to own their Tesla stock if they own it because electric vehicles are the future; it could take a decade or more for Tesla Motors to become a viable, reasonably profitable business rather than just a concept. In that light, any dip from here won’t even be a blip in 2026. The stock will face much bigger competition-driven headwinds between now and then. After all, nothing creates new competitors like the promise of profits in a mostly uncontested space. Just ask Netflix (NFLX).
Of course, despite what they say, most investors aren’t truly prepared to stick with TSLA for that long. That’s why the stock’s so quietly vulnerable to a selloff right now.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities.
