TSLA--The Insane Noob FOMO Indicator
Updated
Of all the securities in this momentum-driven market, Tesla holds the crown as the epitome stock for the wild-eyed Robinhood noob madly buying from "Fear Of Missing Out." So if we want to see when this momentum driven market is going to break, watching TSLA as an indicator is probably a good plan.
Tesla has a great story, a colorful mad-genius CEO, and has actually been producing product and driving an industry. "Driving" an industry, get it? Ha. Tesla might one day be the Amazon or Apple of the car industry. Unfortunately for recent buyers of TSLA stock, the story of TSLA is so good the stock is already priced as if the company has achieved everything its crazed fans believe it will.
To understand just how overvalued TSLA stock is, compare it to Toyota. Toyota is the largest auto manufacturer, makes over 10 million vehicles a year (according to Wikipedia), and has a stock market cap of $190 billion (according to Yahoo). In 2019 Tesla delivered around 370,000 cars, yet TSLA stock has a market cap of over $350 billion, nearly 2x larger than Toyota.
But wait, it gets even more insane.... Not only is Tesla already significantly larger than all other auto makers, it's the 8th largest public company by market cap in the US! It's larger than everything in the US but the biggest of the big: Apple, Microsoft, Amazon, Google, Facebook, Berkshire, and VISA!
Tesla might continue to execute well and in 10 or 20 years eventually become the largest auto manufacturer (and might also be the leader in solar, batteries, auto-driving-AI, etc.). At that point it might deserve the market cap it holds today. However the reality today is Tesla is a tiny company producing very few cars that faces a number of risks and powerful competitors. Even if you believed TSLA will rapidly achieve all that is promised, where is the stock price going to go from the heights it's already at? Are we to believe it will soon overtake Google or something?
The people buying TSLA stock at these prices are either clueless or charmed by the scent of Musk to the point of insanity. The buying has been extreme since the March covid lows.. a gain of 6 times(!) on a stock that was already overvalued. We've likely just seen a TSLA blow-off-top, similar to the blow-offs that happened to all the tech stocks in 2000. First you get a big run up to massively overvalued, then reality sets in and you get a rapid decline down. Someone should explain to the TSLA fans that even stocks like Amazon got ahead of themselves and blew up in 2000.
On the chart I've highlighted a few technical double tops that to me make the chart look particularly ugly. IMO Tesla stock will not see new highs for over a decade.
ONE FINAL CRITICAL BONUS FACT. In the 2000 tech crash, once the market turned and started to fall, brokerages cut back on customer margin. This forced over-leveraged stock holders who were already suffering from a falling market to have to sell to meet their new margin requirements. I know this because I was one of those over-leveraged traders in 2000 who was hit by the margin changes and was forced to sell. I've been waiting for just such a thing to happen again, and now it has started. The news today is Interactive Brokers has just announced they are raising margin requirements due to increased volatility associated with the election. I suspect we're about to see the selling accelerate. Buckle up.
Disclaimer: I'm short TLSA.
Tesla has a great story, a colorful mad-genius CEO, and has actually been producing product and driving an industry. "Driving" an industry, get it? Ha. Tesla might one day be the Amazon or Apple of the car industry. Unfortunately for recent buyers of TSLA stock, the story of TSLA is so good the stock is already priced as if the company has achieved everything its crazed fans believe it will.
To understand just how overvalued TSLA stock is, compare it to Toyota. Toyota is the largest auto manufacturer, makes over 10 million vehicles a year (according to Wikipedia), and has a stock market cap of $190 billion (according to Yahoo). In 2019 Tesla delivered around 370,000 cars, yet TSLA stock has a market cap of over $350 billion, nearly 2x larger than Toyota.
But wait, it gets even more insane.... Not only is Tesla already significantly larger than all other auto makers, it's the 8th largest public company by market cap in the US! It's larger than everything in the US but the biggest of the big: Apple, Microsoft, Amazon, Google, Facebook, Berkshire, and VISA!
Tesla might continue to execute well and in 10 or 20 years eventually become the largest auto manufacturer (and might also be the leader in solar, batteries, auto-driving-AI, etc.). At that point it might deserve the market cap it holds today. However the reality today is Tesla is a tiny company producing very few cars that faces a number of risks and powerful competitors. Even if you believed TSLA will rapidly achieve all that is promised, where is the stock price going to go from the heights it's already at? Are we to believe it will soon overtake Google or something?
The people buying TSLA stock at these prices are either clueless or charmed by the scent of Musk to the point of insanity. The buying has been extreme since the March covid lows.. a gain of 6 times(!) on a stock that was already overvalued. We've likely just seen a TSLA blow-off-top, similar to the blow-offs that happened to all the tech stocks in 2000. First you get a big run up to massively overvalued, then reality sets in and you get a rapid decline down. Someone should explain to the TSLA fans that even stocks like Amazon got ahead of themselves and blew up in 2000.
On the chart I've highlighted a few technical double tops that to me make the chart look particularly ugly. IMO Tesla stock will not see new highs for over a decade.
ONE FINAL CRITICAL BONUS FACT. In the 2000 tech crash, once the market turned and started to fall, brokerages cut back on customer margin. This forced over-leveraged stock holders who were already suffering from a falling market to have to sell to meet their new margin requirements. I know this because I was one of those over-leveraged traders in 2000 who was hit by the margin changes and was forced to sell. I've been waiting for just such a thing to happen again, and now it has started. The news today is Interactive Brokers has just announced they are raising margin requirements due to increased volatility associated with the election. I suspect we're about to see the selling accelerate. Buckle up.
Disclaimer: I'm short TLSA.
Note
In case it wasn't clear, the bonus comment about changing margin requirements is a problem not just for TSLA, but for AAPL, MSFT, AMZN and the entire market. Brokerages look around and see all their customers are massively leveraged long on the same few stocks. They start to worry about their own risk as the market turns. The brokerages change margin requirements to reduce their risk and it forces their customers to sell even when they'd rather double down again. That is the end of a momentum mania--the last stage when the market finally runs out of money and has to fall. Sanity is forced on market participants by those that control the leverage.Note
On the technical side, the double top pattern was not confirmed and it's now appears to be a symmetrical triangle consolidation. Such patterns tend to break in the direction of the previous trend, which was up. On the fundamental side, everything I said above remains true. And in particular I think TSLA is a key indicator to watch to see what momentum is doing. The most insanely rabid bulls in the market are long this stock despite the utter lack of rationality for expectation of gains. But if it does manage to break higher, the insanity continues.Note
Weird things going on this morning... Indexes are up pretty hard, but the VIX (S&P 500 volatility) is up pretty big too, and that usually goes down when indexes go up. Volatility up big on a big day up is rare. One or the other will probably turn around before the day is done.TSLA is up, but not much. It's still in a consolidation and hasn't decided if it wants to continue the crazy up or break lower.
Note
The horizontal consolidation in TSLA continues... surprisingly it hasn't broken higher given how bullish the market is. But it might break higher at any time.Note
Just got an email with a margin maintenance requirement increase notice from E-Trade starting next week. Not a big increase, but still an increase and joining the notice from Interactive Brokers last month. E-Trade was the broker I was using during the 2000 tech crash, and this notice is a bit of dejavu from back then. A little odd to see an increase notice while the market is going up and right near all time highs. But the VIX has been stubbornly high. Either that or a couple brokerages are a tad concerned about what their customers are doing."Because the market is currently pricing in heightened uncertainty, E*TRADE will be increasing our base margin maintenance requirement (house margin requirement) from 25% to 30%, beginning Monday, October 19, 2020."
Note
TSLA is moving up, above the consolidation level and will probably break to new highs. Unless this reverses it suggests crazy market momentum is still going and the indexes will eventually follow. One day this will all end badly, but probably not today.
Note
Back into the consolidation range here on TSLA. The rest of tech isn't breaking higher either. Could stocks be waiting for the election results?Today was also the day Robinhood started reducing margin leverage on selected stocks. Not sure if TSLA will be among them, but I'd be surprised if it wasn't.
Note
The break higher in TSLA on Oct 14 was a fakeout and it fell back into the consolidation. Price has now broken down out of the consolidation and below the lower rising trendline going back to June. I'll probably make an updated chart, but wanted to put out a warning immediately. TSLA looks technically negative here. TSLA is the epitome momo stock and is breaking down which doesn't speak well for the larger market. Multiple indexes have a big potential double top (with the second top making a lower high)--doesn't look good.
Note
Today we finally saw some real fear in the market... VIX was way up. Probably had some margin calls into the close which gives us heavy selling into the close rather than a hopeful rebound. I think the bearishness is just starting. The high VIX is going to force even more selling as people reduce risk. Brokers will continue restricting margin also, right when people's leveraged positions are being hit by the drop--same story as in 2000.All the major indexes look like giant ugly double tops maturing. The DJIA looks particularly ugly as it's now right at the Sept lows (broke Sept lows if you go by closing value), and if those previous lows break that confirms the double top.
TSLA held up really well considering. But again it's overvalued and just waiting for the momentum to turn and the bottom to fall out IMO. The momentum darling TSLA holding up so well so far says either the market is going to recover soon... or the worst hasn't even started yet.
Note
Incredibly TSLA is breaking higher out of the consolidation of the last few months. It hasn't made a new high yet but that's a distinct possibility. I guess the idiots in this stock think it should go higher than Google and Facebook... because selling high-end cars made of steel and batteries and actual physical components is suddenly a more profitable model than selling digital products with no materials, no supply chains, no assembly lines, etc? Alert the media.Seriously, the insanity is astounding. Maybe clueless morons will drive TSLA to become the largest stock in the market before reality hits?
Meanwhile the tinfoil hat part of me thinks the big holders of this stock were all waiting for TSLA's inclusion in the S&P 500 so they could offload their TSLA holdings to all the passive S&P 500 funds. They walk away rich while Mom and Pop passive investors take the hit when the stock eventually prices for fundamentals.
Note
TSLA has poked to new all time highs today. Is it going to go into another extreme ramp and double again? At this point it's almost a $500 billion dollar market cap stock. If it out performs the market and rapidly doubles again it will be a near trillion dollar company pushing out facebook to join the top 5 largest US stocks of AMZN, MSFT, APPL, and GOOGL. Does anyone think a car company that barely makes a profit producing a small number of cars belongs in that exclusive list? Apparently a lot of people do as they're chasing the stock higher right now.Someone explain to me what I'm missing? In what way can TSLA be viewed so that it's not one of the most overvalued stocks of all time with little upside?
Note
TSLA continues to move up as morons buy into pure momentum and news of S&P 500 inclusion. Financial news is starting to notice how insanely large TSLA market cap has become and is now reporting Tesla as the 6th largest company by market cap, just passing Berkshire. foxbusiness.com/markets/tesla-zooms-past-buffetts-berkshire-to-become-6th-largest-us-company
So now the US biggest stocks are TSLA, FB, AAPL, GOOGL, AMZN, MSFT. So again I'll point out TSLA might one day execute perfectly and reach the levels of those other companies to deserve such a large market cap, however today it produces barely a fraction of the cars Toyota makes and Toyota is half the market cap. (Toyota also makes much better quality cars at a lower price). Meanwhile Tesla's high margin business has no hope of scaling up as there simply aren't enough people with the money to buy expensive luxury cars at such high margins. And as a message to Tesla car buyers, those outsized margins say you're paying too much for what you're getting compared to the rest of the auto business. Why are you paying those margins? I guess something about Tesla makes both investors and car buyers turn off their brains.
So if you're buying TSLA at these levels, you're buying a very speculative play with significant risks and downside if it doesn't actually execute to become worthy of the incredible ranking it has achieved. And it's an incredibly stupid speculation IMO as there is no significant upside as the price increase has ALREADY HAPPENED.
Note
The TSLA momo machine keeps running up. This likely indicates the market will continue up as well. Next year will be a different story, but party on for the holidays.Note
Long holders of TSLA beware! Many of the other ridiculous momo stocks in this market imploded today: SPCE -17%, DASH -8.5%, ABNB -6.6%. All these stocks are up to ridiculous levels on nothing but mania, and TSLA might soon follow into the red with its little momo brothers now breaking down.Note
The momentum money has shifted to crypto. Get out of TSLA and other equities before they drop. Get in crypto. JMO.
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