Tesla shares raced above $1,000 for the first time Wednesday as momentum traders continued to pile in amid excitement over its business in China and the potential of a “game-changing battery.”
Shares of Elon Musk's Palo Alto, California-based electric vehicle maker have soared 175 percent since bottoming on March 18, five days before the company was ordered to shut its Fremont, California, plant to help slow the spread of COVID-19. The benchmark S&P 500, which Tesla is not yet a part of, has gained 43 percent in that period.
“We all know that the momentum can take things in a bubble,” Matt Maley, Boston-based chief market strategist at Miller Tabak & Co., told FOX Business. He added that the rise of commission-free and partial-share trading has “exacerbated the rally.”
The momentum behind the stock has made it the top performer on the Nasdaq this year and has contributed to a squeeze that sliced short interest -- or bets the stock would fall -- to its lowest level since July 2010, the month after shares debuted on the exchange.
Short interest had fallen to 16.1 million shares, or 10.93 percent of shares available for trading, at the end of May, according to Dow Jones Market Data. Short interest peaked at 43.6 million shares in May 2019.
Tesla shares received a booster shot on Wednesday after Wedbush Analyst Dan Ives raised his 12-month price target to $1,000 from $800, noting Model 3 demand from China “remains a ray of shining light” amid a dark global macroeconomic backdrop.
China Passenger Car Association data released Monday showed Tesla delivered a record 11,095 vehicles in May, all of which were made at the company’s recently constructed Shanghai Gigafactory.
Ives, who said the China story alone is worth $300 a share, also pointed to Tesla getting close to a “game-changing” 1 million-mile battery as a reason to be excited. He said shares may hit $1,500 in a bull-case scenario.
“Investors have to be very careful,” Maley said. “These high-flying names will be the first ones to get hit hard because of all this fast money, short-term-oriented new money that's in the marketplace.”
If a selloff does develop in the broader market, investors should pay close attention to Tesla’s previous record high of $925 because “old resistance becomes new support,” Maley noted. He added that a secondary support level would be at $765.
“No matter what this company will become, even if it reaches what the biggest bulls are calling for, it does not mean it cannot see significant declines,” Maley warned.
“Remember that Amazon, which everybody would agree is one of the most important companies in the world today, went down over 90 percent when the tech bubble burst."