Tesla’s Failure To Reach $1000 Will Give Investors Bubble Vertigo – Time To Sell – Forbes

'Starman' heads towards Mars in a Tesla roadster (Photo by SpaceX via Getty Images)

Tesla's runup is one for the record books, but its inability to reach $1000 reveals multiple signs that the party is over. Now comes the scary period for shareholders because there are only weak downside support levels. Without them, potential buyers will not have the confidence to act, setting up a runaway train scenario as current shareholders run for the exit to protect their gains (if they bought early) or limit their losses.

Disclosure: Author does not hold Tesla stock

Tesla is top dog in this stock market

No other stock in the top-performing Nasdaq 100 Index comes close to Tesla's performance. Plotting its path upwards flatlines the trillion-dollar Nasdaq leaders' price moves.

Tesla's performance compared to the four $trillion leading companies

Ranking Tesla's performance makes all other top-performing Nasdaq 100 stocks pale.

Tesla performance comparison table

So, why should it reverse now?

For the same reason it ran up so far and so fast: Over-optimism. A stock run based on excitement always runs out of fuel when the "last" person buys. Then the hopeful air that lies below the current price becomes evident. Those gap-ups in the rise that produced confidence? Now, they look like air pockets through which the stock can dive.

Tesla intraday graph (30-minute intervals)

So, as investors shift their upward gaze at Tesla's $1000 objective to the empty air below, they will suffer from bubble vertigo. Like a mountain climber that turns to admire the view, there is a stomach-wrenching reaction at the thought of falling from such a height.

Tesla's rise out-distances the moving averages

Tesla has only weak and much lower support levels

What about those fantastic developments coming?

The reality is that, in the stock market, all bubbles have fantastic developments ahead. Unfortunately, all such exciting scenarios take longer, hit road bumps and gain competitors. Foretelling the results of technological developments, product creation, consumer acceptance along with basic price vs. cost results requires wide latitude.

In other words, fantastic visions are accompanied by high uncertainties and high risks.

The bottom line

Tesla is an exciting company with ambitious plans. And all that excitement has driven Tesla's stock faster and higher than most stocks ever experience.

That rare stock performance is aided and abetted by investors attracted to fast rising stocks, which, in turn, ignites interest in others. Unfortunately, that is how stock bubbles come about, and it looks like Tesla is the latest version of that excess.

A curious situation occurs with a stock that seemingly offers easy and quick profits: High prices increase confidence in further returns instead of properly heightening concern about the true accompaniment: Rising risk.

The only "cure" is a reversal that goes "too far" to be viewed as an opportunity to buy more. Tesla stock's stupendous price rise should be seen as a corresponding rise in risk, putting it in a fragile position. Furthermore, the $1000 magic level, whether the stock touches it or not, is meaningless except to those excited about the added profits it represents.

For all these reasons, Tesla certainly looks like a sale. Love Tesla, the company? That's fine, but don't ignore what history teaches: Exciting company stocks can get ahead of reality, setting up a dramatic drop to bring them back to earth (and produce an opportunity to buy at a reasonable price, thereby creating a foundation for a non-bubble rise).

Apple experienced a bubble runup and collapse in 2012, and so can Tesla in 2020.

Apple's 2011-2013 bubble and collapse