Tesla (TSLA) shocked investors yesterday as it plunged by a nauseating 17.18 percent. On Tuesday, I encouraged investors not to buy into the Tesla hype because it was showing signs of topping out. On the same day, shares of the electric vehicle maker climbed as high as $968.99. If you bought at the top, you would be down by a sickening 24.18 percent in 48 hours.
Unfortunately for Tesla bulls, this is just the beginning. I expect the stock to continue crashing in the following weeks. I am not alone to have this view.
When trying to catch the bottom of a market, all you have to do is wait for volume to explode. At the height of a bear market, intense fear drives intense selling. The smart money then takes advantage of the capitulation by accumulating positions at rock bottom prices.
The opposite is true when timing a market top. At the height of a bull market, intense greed drives intense buying. The smart money then takes advantage of the soaring demand to sell shares at sky high prices.
Over the last three days, TSLA recorded its three largest daily volumes in its history:
Before February 3rd, TSLA’s largest daily volume was over 37 million recorded in May 2013. At the very least, the exponential surge in volume tells me that early investors are cashing out. Once buying exhaustion sets in, and it will, Tesla would hit the ground hard.
says full-time trader Johnny Lambo.
The top was in yesterday. Tesla will be back to $500 soon.
If Johnny Lambo is right, that’s another 30 percent nosedive for the electric car company.
While I’m taking a contrarian stance on Tesla, others are still cautiously optimistic. They believe that yesterday’s crash does not spell the end of the stock’s impressive rally. When asked if TSLA’s parabolic rally is over, trader Scott Melker told CCN.com,
It is too soon to tell.
Jason Harris of StockHunterTrading.com also has the same response. He said,
Still too early to tell. It’s holding a longer term uptrend. Today might have just trapped more new shorts plus SSR is on. Let’s see what happens tomorrow.
SSR stands for short-sale rule. The rule restricts investors from shorting a stock that has lost 10 percent or more of its value from the previous day’s close.
Lastly, Elliott wave trader BenjaminBlunts also thinks that more time is needed to see where Tesla is going. He told CCN.com,
On the daily timeframe, yesterday’s close was a confirmed evening star. So either we begin a wave 4 pullback towards $600 or that was a blow off top. [It is] too early to tell which one.
While picking a bad time to sell can be costly, picking a bad time to buy can be worse. Early or not, yesterday’s crash puts bulls in a defensive position. If they don’t show up in droves today, Tesla will likely continue to drop big time. The higher they go, the harder they fall.
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.