Tesla's parabolic rise has not been driven by fundamentals, forcing even bulls like Citron Research to bet against Elon Musk.
Tesla’s (NASDAQ:TSLA) gravity-defying rally has seen the stock double in 2020 alone. With the company’s market cap over close to $160 billion, CEO Elon Musk is now almost sure to pocket a $1 billion bonus.
But Tesla’s parabolic rally has not been driven by any significant fundamental changes. The company’s revenue growth dropped to single-digits in the latest quarter. Consequently, a lot of new short-sellers are looking to short the bubble, one of whom is Citron Research.
In a tweet posted during trading hours on Tuesday, Citron Research confirmed that they would be shorting Tesla. Citron had earlier promised never to short the electronic vehicle (EV) maker again but changed its mind after the recent run.
Unlike most Tesla shorts who think the company is structurally bankrupt, Citron is shorting Tesla exclusively because of the valuation. Citron even suggested that Elon Musk himself would have shorted the stock if he was a fund manager.
Tesla has entered so far into the bubble-territory that it is drawing comparisons to the Bitcoin and South Sea manias. So it isn’t surprising to see new short-sellers pop up.
This won’t be the first time that Citron Research would be shorting the EV-maker. Citron was a very vocal short till mid-2018. But in October of 2018, Citron did a complete 180 and went bullish, drawing criticism from the then-fellow short-sellers.
Citron’s change of stance came in just days before Tesla’s third-quarter earnings and was perfectly timed. The company reported a big surprise profit and rallied as much as 40% in the subsequent month.
This begs the question, is Citron Research’s timing perfect this time too?
Tesla’s 2020 rally has been robust. The stock never retraced even 10% and touched new all-time highs every week. But Tuesday’s price action suggests that cracks may be starting to appear.
After rallying consistently throughout the day, Tesla inexplicably dropped by over $100 in the last 15 minutes of trading. The stock still ended the day up 17%, but the mini-flash crash is the sharpest drop recorded in weeks.
The drop was also accompanied by heavy volume, suggesting that it wasn’t just a ‘healthy’ correction.
Github executive and former Tesla bull Greg Wester also pointed out that the retail holding of the stock has been increasing as well.
Retail traders often use the Robinhood trading platform and have been active buyers of the stock.
Speculative retail traders are usually the ones left holding the bag when a bubble pops. And the recent rise of retail ownership can suggest a top may be near for Tesla stock.
Only time will tell if Citron’s current U-turn on Tesla is as perfect as the last one. But, Tesla is starting to show signs of a top.
This article was edited by Samburaj Das.
Last modified: February 5, 2020 8:21 AM UTC