While investors may think that the volatility in Tesla’s share price is nothing more than a stock’s crazy trade, some analysts believe the stock’s bubble may be a warning to the stock market as a whole. Doug Ramsey, chief investment officer at The Leuthold Group, an US investment research firm, said a large number of assets or securities would be over-inflated by price volatility before the stock market suffered a bigger sell-off.
Ramsay has a list of assets known as “breaking the parabolic”, including cannabis stock Tilray, plant-based artificial meat company Beyond Meat, period palladium and natural gas futures.
Tesla’s share price has a similar trajectory, with the company’s share price up 132 percent from the start of the year and peaking at $968.99 last Tuesday. Tesla’s shares have surged 49 per cent in just two trading days, from the close of trading on Friday, January 28, to the highs it hit on Tuesday, February 4. The company’s shares fell 23 percent to $748.07 in the year to Friday’s close. But on Monday, Tesla’s share stake rose again, at one point reaching nearly 10 percent, after reports that Tesla’s Shanghai plant might reopen, but then narrowed to about 2 percent.
“I think it’s a warning and i think the stock will go down from now on.” Matt Maley, chief market strategist at Miller Tabak, said. “In the next two or three years, the stock could rise to $2,000. But that doesn’t mean the stock won’t fall sharply now. “
Mr Marley said he expected the BROADer US stock market to fall as much as it did. “The problem is you never know when it’s going to happen. Do you have to get the Dow Jones Industrial Average up to 30,000 (the stock market will start to fall)? Or do you have to make the Nasdaq composite rise to 10,000? Perhaps, these big integers tend to be like magnets. Marley said. ” (The stock market pullback) will come, it will come sometime this year. It’s normal and healthy. “
Mr Ramsay pointed out that Tilray’s parabola was in September 2018, when the stock hit a peak, and two days later the S.P. 500 hit an important high.
A few weeks later, as U.S. stocks rebounded in November 2018, natural gas futures prices surged again. Shortly thereafter, natural gas futures prices suffered a heavy sell-off at the end of the same year.
Bitcoin also quadrupled in less than two months before collapsing in late 2017. About a month later, Mr. Ramsay noted, the S.P. 500 had entered a two-week decline of 10 percent.
Mr Ramsay also said Beyond Meat shares had soared after the company’s IPO last year and that the US market had hit short-term highs at the time.
He further pointed out that over the past two months, the price of palladium has risen sharply. “There seems to be a good chance of some form of speculative stock market ‘echo’ in the coming months, ” mr Ramsay said. “
Mr Ramsay and Mr Marley said investors were trying to compare Tesla to the 1999 tech bubble. In some cases, investors see no comparison between the two, because they believe that Tesla’s surge is only related to the stock itself and conclude that the market is not dangerous.
“The problem is, in my opinion, in our lifetimes, we’ll never see optimism like this again. “Marley said of the bubble of many technology companies. He noted that other stocks are showing signs of optimism, but not like Tesla, there is a hyper-parabolic trend.
“We’ve seen this in other stocks, like Apple. He added that Microsoft’s share price also continued to rise. “At a price-to-earnings ratio of 30 times, the stock has become more expensive. After all, 1999 (the tech bubble) is a long time gone. Microsoft is a great company, (but) the stock has risen too much. “
Marley pointed out that the U.S. stock market is now facing a risk, the market is in the region under the pull of several companies to move higher. “These are great companies, but it’s crazy to think that their share prices aren’t going to fall sharply. It reminds me of 2017. In mid-2018, the stock market experienced two corrections. He said.
Not all traders agree that Tesla’s frenzied trading sends a warning message to the U.S. stock market. Scott Redler, a partner at T3Live.com, said: “There will always be special cases in the market where there is an over-focus on a stock, which shows excessive risk, but that doesn’t always mean that there is optimism in the market in general. Mr Redler said he started longing at $340 at Tesla earlier this year until Tesla hit $700 last Monday before soaring to $960.
“This stock must be a ‘fever’. Redler said.