Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from ShareProphets). I have no business relationship with any company whose stock is mentioned in this article.
I am not a great fan of shorting crazy valuations on the basis that they tend to get crazier. For this reason, I have not been short the likes of Fevertree (FEVR) or Purplebricks (PURP), as calling the top is well-nigh impossible.
Either these types of company grow into their sky-high valuations (Rightmove (RMV) is a good example here) or, more commonly, they eventually crash and burn having ruined a lot of bears in the process. The best way to play this (other than doing nothing) is to wait until the momentum is broken by a 20 or perhaps even 30% fall from the high in an otherwise normal market.
For this reason, I am looking to short Tesla (NASDAQ:TSLA) at around $300 as it retreats from its $380 high. Like most people I have a morbid fascination with Elon Musk, who has made Tesla the poster-child of this huge post-crisis rally. The risks that Musk has taken on are eye-watering and whatever happens to Tesla he has booked himself into the entrepreneurial hall of fame as well as the future history of battery powered vehicles.
I can’t help thinking, however that his luck may be beginning to run out. The share price still demands that the new affordable $35k model 3 reaches mass production without a single hitch. There are signs that sales of the premium models S and X may have plateaued and Volvo has just pledged to be all electric in a few years’ time, a reminder to the market that fierce competition from the established players is a certainty.
Goldman has slapped a $180 target on the stock (and is no longer a creditor). More financing will be needed by Q1 2018.
Back in April Musk gloated at the pain being inflicted upon the Tesla short community with the hubristic tweet “stormy weather in Shortsville”. What goes around comes around and I have a feeling that nemesis is on the way.
If and when Tesla breaks $300 I intend to go short with a $350 stop and target of sub $100 within a year.
This article first appeared on the Nifty Fifty website which Tom Winnifrith runs with Steve Moore & Lucian Miers. To access the website ahead of the next share tip from Tom & Steve shortly and a new shorting piece from Lucian later this week click HERE
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