Elon Musk May Have Just Tweeted the Top in Tesla Inc (TSLA) Stock

Advertisement

Since making a low of $303.26 on May 23, shares of Tesla Inc (NASDAQ:TSLA) have risen an incredible 21% over the past 11 trading days. This puts the year-to-date gain at a rather hefty 73%. With really no glaring fundamental reason (and god knows Tesla has long ago divorced itself from fundamentals) for the rise, one can look at an epic short squeeze as the likely rationale for the parabolic run in TSLA stock.

Tesla (TSLA)TSLA Stock: Elon Musk May Have Tweeted the Top in Tesla Inc (TSLA) Stock

Source: Tesla Motors

Given the recent price action, my probability-based trader gut says it’s time to take a guarded short position in TSLA.

Certainly Tesla CEO Elon Musk puts credence to that notion that the shorts got squeezed … and squeezed hard. His tweet from yesterday makes no mistake about trolling the shorts.

S3 Partners showed a nearly $10 billion short interest in TSLA stock at the end of last week, with a tweet from yesterday updating that number to $10.4 billion.

No doubt the breakout past the major resistance level at $327 started the short covering cavalcade. Tweets indicating the massive amount of shorts only added major fuel to the fire, likely leading to the near panic buying evidenced.

It is near ludicrous to even begin to delve into any kind of serious fundamental analysis. Investorplace contributor Vince Martin does a superb job dissecting that issue. Tesla is a company built on faith, and that faith hasn’t been shaken in a very long time … maybe too long.

Tesla by the Numbers

Technical analysis shows that TSLA stock is reaching extremely overbought levels with a nine-day RSI exceeding 80. This has been a pretty solid indicator of a short term top recently, especially when combined with a 21% 11 day rally.


Click to Enlarge
Even the most bullish analysts are starting to reach for reasons to have Tesla shares go higher as evidenced by the latest from Baird analyst Ben Kallo. With his $368 price target now exceeded, he delves into a “blue sky” scenario where TSLA stock could theoretically be worth $566. Why not, even though the average TSLA analyst price target is in the neighborhood of $275.

The annual shareholders meeting that was recently concluded laid out ambitious goals which will likely require additional dilutive cash raises. Important to also remember that none of the previous grand plans have actually paid off so far.

Higher prices unto themselves can blind investors into a false sense of comfort and security. Most people feel more secure with a stock that climbs ever higher day after day.

While I am a man of faith, I am not a man of blind faith. Extremes of price action as evidenced in TSLA stock always make me question the faith. As Warren Buffet said, “be fearful when others are greedy”

Given the overbought technicals, an epic short squeeze and the extreme hubris shown by the Elon Musk tweets, I think it is time to be fearful. A counter trend bearish put buy makes probabilistic sense on both a direction and magnitude of the move basis.

TSLA Stock Trade Idea

Buy TSLA June $370 puts at $8.20 or better.

The puts cost only 2.2% of the $370 closing price of TSLA stock, so it won’t take much of a retracement to gets these puts profitable.

As of this writing, Tim Biggam did not hold a position in any of the aforementioned securities. Anyone interested in finding out more about option-based strategies or for a free trial of the Delta Desk Research Report can email Tim at timbiggam@gmail.com. 

Tim spent 13 years as Chief Options Strategist at Man Securities in Chicago, four years as Lead Options Strategist at ThinkorSwim and three years as a Market Maker for First Options in Chicago. Tim makes weekly appearances on Bloomberg TV  “Options Insight”, Business First AM “Trader Talk”, TD Ameritade Network “Morning Trade Live” and CBOE-TV “Vol 411” to discuss everything from volatility and option related.


Article printed from InvestorPlace Media, https://investorplace.com/2017/06/elon-musk-top-tesla-inc-tsla-stock/.

©2024 InvestorPlace Media, LLC