Tesla printed an all-time high Monday after being pushed by heavy volume. Fundamental and technical factors are flashing that top is in.
Tesla (NASDAQ:TSLA) has been slaughtering bears for over seven months. Since June 2019, the stock of the electric vehicle company has skyrocketed by a whopping 340.7%. In comparison, the S&P 500 has grown by a little over 19% over the same time period.
On Monday, the stock once again shocked the entire investment community with a face-melting 19.9% pump. At this point, there’s no doubt that Tesla is in a bubble. The important question to ask now is when will the bubble burst. Personally, I think this bad boy will crash soon. All fundamental and technical indicators are screaming that the top is in.
Before you start thinking about jumping into the Tesla hype, consider its basic fundamental properties. The electric car market has a market cap of over $141 billion yet its revenue in 2019 stands at $25 billion. This means that Tesla has a price-to-sales (P/S ratio) ratio of 5.635. In other words, investors are willing to pay $5.635 for every dollar of sales.
In comparison, GM, Ford, and Chrysler have a combined market cap of $110 billion. Their combined revenues last year amounted to a whopping $425 billion.
Here are the P/S ratios of the big three car manufacturers:
Based on these figures, you can clearly see that Tesla is extremely overvalued. The EV maker’s enormous valuation led Mike Novogratz to compare TSLA to bitcoin’s 2017 bull run.
We all know what happened to bitcoin after it printed an all-time high near $20,000. I believe we’ll see the same script play out in TSLA real soon. The stock is flashing signals that the bubble is ready to burst.
First, the name printed its largest volume in its ten years of trading. A mind boggling 47.211 million TSLA shares changed hands yesterday. According to billion-dollar hedge fund manager Will Meade, that’s equivalent to almost 30% of the stock’s market cap.
The dramatic volume uptick at an asset’s all-time high is never a good sign as it suggests peak euphoria. At this point, bulls must print tremendous volume to sustain TSLA’s ascent. After yesterday’s buying activity, that’s next to impossible.
Tesla is also trading in oversold conditions in all timeframes. In the daily chart, the RSI is hovering above 90, which is a level that the stock has never seen before.
As TSLA is extremely overvalued, it’s only a matter of time before the bubble bursts. Will Meade shares the same sentiment. He believes that the stock will dump to $400 for a 48.7% devaluation.
While it is tempting to short TSLA, one trader reminds us that the stock was able to climb as high as it did due to short sellers. Jason Harris of StockHunterTrading.com told CCN,
Coming into 2020, TSLA has been a combination of short squeeze, more positive catalysts with China roll out, and increased volume which creates momentum. Those things combined have created this big parabolic push to record highs.
The trader added,
This will come back to reality but for now this can keep pushing as long as that momentum continues and today options buyers were still buying 800, 850, 900 and 1,000 calls for this week. Once this does have a blowoff day, it probably comes back below 600, consolidates, then figures out where to go from there.
One thing’s for sure: gravity will eventually bring TSLA back to earth. I believe that will happen sooner rather than later.
Disclaimer: The above should not be considered trading advice from CCN.com. The writer does not own any shares of the companies or markets mentioned.
This article was edited by Sam Bourgi.