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Tesla stock is at a record but a crash may be right around the bend

Brian Sozzi
Editor-at-Large

Higher stock price secured.

Tesla’s stock price (TSLA) touched a record high on Thursday of $406.83 intraday, blowing past the late September 2017 peak of $389. It marks an incredible 55% rally from Tesla’s Oct. 23 third quarter earnings release day, where Elon Musk’s auto creation surprised Wall Street with a $143 million net profit.

Shares of the electric car-maker are nearing Musk’s infamous $420 price where he said Tesla would be taken private. “Am considering taking Tesla private at $420. Funding secured,” Musk tweeted on August 17, 2018.

Most Tesla watchers on Wall Street believe several factors have converged to send the stock skyrocketing into 2020. First, the company’s aforementioned shocking quarterly profit has reduced the likelihood of Tesla raising cash at a penalizing cost soon. Further, the mood on the Street is that a more focused Musk is helping to bring the operating discipline needed to run a profitable auto enterprise.

In turn, that emerging thesis has crushed the hardcore short sellers in Tesla’s stock — and as always, there are a good bit of them.

“Given a solid wave of positive data points, Tesla stock has been driven higher amid short covering and likely with some long buying as well,” notes Credit Suisse analyst Dan Levy.

Meanwhile, Tesla’s new Gigafactory in Shanghai has begun to roll out cars. That is probably spurring hope of Tesla selling autos in the country, way better economically relative to years past.

Elon Musk, CEO of Tesla Motors Inc., left, discusses the company's new Gigafactory Tuesday, July 26, 2016, in Sparks, Nev. It's Tesla Motors biggest bet yet: a massive, $5 billion factory in the Nevada desert that could nearly double the world's production of lithium-ion batteries by 2018. In the center is J.B. Straubel, Tesla's chief technical officer and at right is Yoshihiko Yamada, executive vice president of Panasonic. (AP Photo/Rich Pedroncelli)

Don’t get too excited

Despite an onslaught of positive news, it doesn’t mean Tesla’s stock is poised to go up another 50% in two months. In fact, some on Wall Street are advising big-time caution on Tesla in light of the runaway stock price.

Levy says, “Yet amid this run, expectations for Tesla have likely risen. And to the extent a soft datapoint emerges, it could lead to some stock correction.” To that point, analysts are looking for another profitable quarter for Tesla when it announces fourth quarter results early next year. Given the company’s volatile past, there is surely no guarantee two consecutive quarters of profits will be delivered.

And the market wouldn’t like that one bit.

From a pure technical analysis basis, Tesla’s stock now appears to be severely overbought.

“It is getting overbought on both a short-term and intermediate-term basis. We do admit that its weekly RSI chart has become more overbought (more extreme) a couple of times in the past (2013 and 2017 to be specific), but it’s still quite overbought,” Miller Takak strategist Matt Maley says. Maley notes Tesla has tested its current price level on four other occasions over the past year and each time it was followed by a serious decline (the smallest being 20%).

Cautions Maley, “Therefore, the risk/reward equation for Tesla…after a 50% rally in less than 2 months (and more than a 100% rise in just six months)…is no longer nearly as beneficial as it has been at other times this year!!!”

The First Trade at Yahoo Finance. Follow him on Twitter @BrianSozzi

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