Tesla (NASDAQ:TSLA) stock set new all-time highs this week and is still going. It seems that Wall Street is chasing the infamous $420 mark that CEO Elon Musk once tweeted about. In September 2018 at the time of the original tweet, his “prediction” started a selling jag that crushed the stock over a period of months. Some even doubted the company’s ability to survive.
Now the selloff is in the rear-view mirror as the stock is at new highs. It may still have a bit to go, but I bet there will be more cautious entry points ahead. Don’t get caught up trying to chase this trend.
This rally was hard to imagine earlier this year when the stock fell off a cliff to $177 per share. Back then there were few fans of Tesla stock. But now the bandwagon is full again, and perhaps too full. High-profile experts like CNBC’s Jim Cramer are back on board the Tesla truck.
Tesla stock bounced 48% off those June lows. But the rally really heated up on an incredibly positive reaction to its October earnings. It is now up more than 120% — and that’s in less than six months. This puts pressure on management to keep the good news coming. At these levels, investors will need to be quick to cash in their recent profits.
Management Needs to Deliver
This is not the same as me suggesting investors should short TSLA stock. But, odds are that there will be better entry points. Fans that have stuck with it are seeing the reward, and depending on the original reason for the investment, they can stick it out until the end.
But for those looking for new positions in Tesla, it would be more prudent to wait for a pullback at least to prior pivots which could be 15% lower. I know this sounds overly bearish and I may upset a few fans by saying it. However, consider the fact that this would merely bring it back to its levels from a month ago.
There are several pivot levels that would support Tesla stock on bad days. They are at the $361 and $340 zones. Otherwise, there will be talks of filling the gap more than $30 below current levels.
Shorter term, TSLA needs to hold $399 or else it risks filling the gap to $393. There is also another gap, but it’s all the way down at $360. However, the bulls have support at $380 where the recent volume point of control lies. This is where buyers and sellers have been most active, so if the price falls to it, the congestion in that zone acts like brakes. Conversely, there is no real reason to short it because the bulls can continue to pursue the $420 mark.
I am not a Tesla hater — I have written about trading it from the bullish side more often than not. But I do recognize that some facts now have tilted to the overly bullish side. When everyone agrees about Tesla stock’s future I worry. Accidents almost never happen when people are worried. It seems that currently no one is concerned about any risks in the stock.
Focus on Tesla Stock’s Game-Changer Status
Fundamentally, Elon Musk built Tesla to be a game changer. But to me, it seems to be falling in line with the standard car company mentality. Management has been drawing more hoopla over new models or production announcements. Instead, the company should emphasize more events to highlight how dominant it is in the battery segment (just for example). Management could also focus on its leadership in the self-driving arena. This would unpin it from the car company board.
I bet there are many investors like me who miss the meme that Tesla is a tech company, not a just car manufacturer. That drove the prior premium run-up in Tesla stock. Today’s valuation premium is based purely on vehicle updates and financial results.
Nicolas Chahine is the managing director of SellSpreads.com. As of this writing, he did not hold a position in any of the aforementioned securities. Join his live chat room for free here.
