In the six weeks since Donald Trump won the election, Bitcoin (BTC) has surged around 55%.
That’s an impressive gain. Yet Tesla (TSLA) has soundly beaten it. TSLA has almost doubled over the same time.
That has helped propel founder Elon Musk’s fortune to over $400 billion.
TSLA spent most of the year in the doldrums while other Big Tech stocks (and the broader market) soared. So it has been one heck of a comeback…
That’s especially true given that TSLA was cutting its electric vehicle (EV) prices earlier this year to sell its cars.
But TSLA’s up move is going vertical. And investors need to be wary of that rally blowing out.
So let’s check in on TSLA today to see what could burst its bubble…
Gapping Higher
The chart below shows TSLA’s tepid performance through November.
Before that, the longer-term 50-day Moving Average (MA, blue line) meandered sideways. The 10-day MA (red line) crossed it multiple times in both directions. That’s a sign of a classic rangebound pattern.
Tesla (TSLA)
Source: e-Signal
Before its current run, the only major move for the year was TSLA’s brief rally in July.
That move peaked and reversed. The Relative Strength Index (RSI) inverted from overbought territory (upper gray dashed line).
In late October, though, TSLA gapped higher off the back of Q3 earnings.
TSLA beat earnings per share (EPS) estimates. Revenue was slightly down. Yet the stock soared from Musk’s predictions of 20%-plus growth in EV sales in 2025.
That move fizzled out. But TSLA gapped higher on Trump’s victory…
You can see that that move initially stalled when the RSI formed an inverse ‘V’ and reversed from overbought territory.
Take another look:
Tesla (TSLA)
Source: e-Signal
All the same, TSLA burst higher again as momentum returned at the start of this month.
The strength of that rally appears in the 10-day MA’s sharp climb. That has pulled the 50-day MA higher too.
TSLA’s rally continues unabated (for now).
Yet it’s tracking a long way in overbought territory (orange circle).
That comes as a wave of brokers rush to upgrade their TSLA price targets (playing catch-up). That always makes me wary.
So how should investors play TSLA from here?
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An Excuse to Sell
After such a strong run-up, we need to consider the psychology of the market…
Bulls who have made a lot of money from TSLA’s surge will be looking for an excuse to sell.
So any sign that this current rally has stalled could set off a wave of selling.
We’ll keep a close eye on the RSI… The RSI making another inverse ‘V’ and retracing from deep in overbought territory (like in November and July) could signal a pullback is about to unfold.
That could provide the opportunity for a trade to the short side (using a put option).
Remember that with mean reversion trades, we’re not looking for a major trend change – although such a move can be handy.
Instead, we’re looking for something that has overshot. Then we can profit when it reverts the other way.
Happy Trading,
Larry Benedict
Editor, Trading With Larry Benedict