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Has The Moment Of Truth Arrived For Tesla's Stock?

Benzinga2021-05-20

When an issue has a ridiculous rally, reaches a ridiculous valuation and retreats, it's impossible to predict if the issue will return to its former glory.

This description can be applied to a slew of companies, however, the issue with arguably the biggest cult following is Tesla Inc. and is the PreMarket Prep Stock Of The Day.

How Did It Get So Overvalued?Besides the masterful influence its CEO, Elon Musk, exhibits through Twitter, there are three important events over the last nine months that have accounted for the fluff on top of an already fluffy issue.

The first one being, the issue's 5-for-1 stock split announced on Aug. 11, 2020, which became effective on Aug. 28. In addition, to rallying from its price prior to the announcement ($274.88) to $442.68 (the closing price before the split), it tacked on another $50 on the day following the split.

Many shorts were convinced the split put in the all-time high and were rewarded when the issue cratered to $329.86 in the next five sessions. However, there was another powerful catalyst waiting in wings.

On Nov. 30, when the issue was hovering at the $400 area, it was announced the company was going to be added to the S&P 500 as of Dec. 21. In an all-out assault on indexers that would need to purchase shares by that date, frontrunners were out in full force.

Over the next few weeks, the issue rallied from its Nov. 16 close ($408.09) and wasn't added to the index until the staggering price of $695. No change in the fundamentals of the company, but a 70% rally nonetheless.

Once again, shorts were again convinced that the top was in and were rewarded in the short-term when Tesla swooned to $614.23 only two days later. However, when it cleared that high in the first trading session of 2021, panic buying boosted the issue to $884.49 just five sessions later.

The ultimate high wasn't made until Jan. 25 at $900.40.

When adding the price increase in Tesla from only two of those events, the split ($225), the S&P 500 add ($287) for a total of $512. When discounting that from its all-time, many consider the fair value of Tesla to be $388 instead of its current price around $560.

The Moment Of Truth Has Arrived: Whatever you think of the above math and logic behind it, there is one thing for certain: the issue has retreated 38% from its all-time high and has reached a critical support level.

This is simple math from a technical standpoint. Ahead of the January ramp, the issue bottomed in December at $541.21. Panic selling in March took the issue to $539.49 and Wednesday’s low stands at $546.98.

One does not have to be a Chartered Technical Analyst to know that if the trio of lows at the $540 level is breached, it's going to get real ugly and in a hurry. Support is support until it's breached and once that happens it often becomes major resistance.

Shareholders are hoping that level isn't taken out, but the longer it hangs out in this area, the more concerned they'll be.

Disclosure: The author of this article is long shares of Tesla.

Disclaimer: Investing carries risk. This is not financial advice. The above content should not be regarded as an offer, recommendation, or solicitation on acquiring or disposing of any financial products, any associated discussions, comments, or posts by author or other users should not be considered as such either. It is solely for general information purpose only, which does not consider your own investment objectives, financial situations or needs. TTM assumes no responsibility or warranty for the accuracy and completeness of the information, investors should do their own research and may seek professional advice before investing.

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Comment58

  • Jinwen08
    ·2021-05-20
    Honestly, selling Bitcoin to pump up its profit…
    Reply
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  • Jarenng
    ·2021-05-20
    Still bull regardless
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  • kittydana
    ·2021-05-20
    yas la! lyk and comment pls
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    • kittydana
      noice
      2021-05-20
      Reply
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    • ccmk
      Comment for you
      2021-05-20
      Reply
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    • Jarenng
      done
      2021-05-20
      Reply
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  • Ameliakoh
    ·2021-05-20
    Follow 
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  • Go4good
    ·2021-05-20
    Recently with the negative news from cryto and tesla sales in China, price now is very uncertain. Maybe for short term, but to ear orto most it’s very dependent to entry price. 
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  • SaveHK
    ·2021-05-20
    Tesla will rebound like Bitcoin[開心] 
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    • Jarenng
      agreed!
      2021-05-20
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  • lizzy04
    ·2021-05-20
    short! Short! SHORT!!!
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  • QLoud
    ·2021-05-20
    More chances for me to buy in I guess
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  • rx5000
    ·2021-05-20
    Fuck Tesla I’ve always said this stupid stockwas overvalued, let it crash and burn 
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  • JKMH
    ·2021-05-20
    The author is trying to make you sell, creating an opportunity for him to buy 
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  • JTLim
    ·2021-05-20
    When the Tesla stock went up earlier , all said will go more 1k  per share. But when it crashes, all will say it bad things about it. I wonder who have really shown the true color here
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  • ProsPaddles
    ·2021-05-20
    900? Hmm
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  • jaster
    ·2021-05-20
    Very overvalued as anyone who has done any serious research can see. Still, many people will buy in on the hype so potential for profits so long as you don't get too greedy.
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  • Grest
    ·2021-05-20
    To the moon!
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  • GCL08
    ·2021-05-20
    TSLA will be back stronger ?
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  • ioob
    ·2021-05-20
    DCA 
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  • Wisher
    ·2021-05-20
    Investment takes time to turn into profit.Pls like and comment.Thanks.
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    • Silverlitz
      Long term investors need not fear
      2021-05-20
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  • TMENG88
    ·2021-05-20
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  • Joketrader
    ·2021-05-20
    After all that trashing on the stock and i find out at the end of the article that the author is long Tesla. Hahahah
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  • tomomeow
    ·2021-05-20
    Initially I thought to go in at 550. Now maybe at 500. Haha.. ?
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