Can Tesla Stock Finally Reach New Highs?

The trading range of Tesla stock has held for 18 months. Here's what will enable TSLA to break out.

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The performance of Tesla (NASDAQ:TSLA) stock of late truly has been impressive. It’s not just the fact that TSLA stock has gained 40% since late October. It’s also the environment in which Tesla stock has made those gains.

After all, the broad markets have been tanking. Investors are fleeing risk. Tech is being sold off and so are other cyclical stocks.

Yet Tesla stock – a tech play that is in one of the most cyclical industries there is – has climbed, seemingly without interruption. It’s true that auto stocks mostly have held up during the market downturn, but Toyota (NYSE:TM) is not far from a 52-week low. Even Ford (NYSE:F) and General Motors (NYSE:GM) have tumbled during the last few sessions, but Tesla stock simply keeps churning higher.

It seems somewhat surprising that even after that performance, and in the afterglow of an impressive (and key) Q3 earnings report, Tesla stock actually isn’t at an all-time high. The current price of $374 is still 6%+ below its September 2017 level of $389.

At the moment, it certainly seems like TSLA stock is headed above that level and perhaps to $400 and beyond. But it’s worth noting that resistance has held repeatedly at the current levels. Technicals suggest that if Tesla stock breaks through that resistance, the shares could soar. Can TSLA finally bust through the resistance, and if so, how can it do so?

The Short Squeeze

The most obvious near-term catalyst is a so-called “short squeeze,” in which traders who have sold Tesla stock short wind up covering at ever-higher prices. Indeed, Musk’s long-promised “short burn of the century” already seems to be playing out. Short interest as of Nov. 15 was down 15%; over 5 million shares or nearly $2 billion worth of Tesla stock, have been bought back.

Luke Lango detailed the potential for a short squeeze on this site this week. And analysts at Piper Jaffray made a similar case, arguing that technicals indicate that TSLA can reach $525-$550 if Tesla stock finally breaks through resistance.

Whether that target is correct or incorrect, the broad point makes some sense. If TSLA stock keeps moving higher, at some point shorts will cry “uncle.” Each short-covering transaction will only move Tesla stock higher, eventually enabling it to exceed $390 and almost certainly catapulting it beyond that level.

No Bad News

Of course, technicals and shorts are only part of the picture. Tesla also needs to ensure that investors remain confident in it, which TSLA and its CEO, Elon Musk, haven’t always been able to do. Less than three months ago (though it seems longer), Tesla stock was plunging as Musk settled with the Securities and Exchange Commission after his ill-fated “420 tweet“.

In that context, the reaction to Musk’s interview with CBS’ 60 Minutes on Sunday night was interesting. Musk essentially poked the agency – which he already had called the “Shortseller Enrichment Commission” – in the eye, telling correspondent Lesley Stahl that “I do not respect the SEC.”

But Tesla stock rose on the day after the interview. That was quite a notable departure from the trading that occurred after the initial confrontation with the SEC. At that time, investors sold TSLA, fearing that the regulator might force Musk to resign as CEO. Analysts and writers – myself included – argued that Musk needed to change his ways.

This time around, however, investors simply shrugged. That seems to suggest that it’s going to take a lot at this point to undermine investors’ confidence. And given that SEC head Jay Clayton apparently didn’t know – and didn’t care – about the prior tweet, it seems highly unlikely that his agency will be the catalyst that shakes investors’ bullishness on Tesla stock.

What Goes Wrong?

So there’s a clear path for TSLA stock to reach new highs heading into the New Year. The stock seems almost immune to investors’ macro worries. The company’s Q4 earnings will be important, but they aren’t slated to be unveiled until February. Shorts are running for the exits, and analysts are predicting that Tesla’s results will beat expectations by a meaningful amount.

For 18 months, a stock price above $350 and seemingly smooth sailing has led to a top for TSLA stock. This time might be different, though, and if it is, I’d expect Tesla stock to rise meaningfully above its previous highs.

As of this writing, Vince Martin is long CBS and has a small, out-of-the-money bearish option position on Tesla. He has no positions in any other securities mentioned.

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