Tesla bubble
Alberto Costa breaks down Tesla's parabolic run as a textbook bubble, warning against FOMO buying and the dangers of shorting into a squeeze. The stock sits 40% above its moving average with a 20% short float. His advice: follow your rules, do nothing, find other trades.
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Imagine that you are following Tesla. And I know Tesla is one of those companies that you either like or hate, but imagine that you are following it because you want to maybe buy some shares. And then you see that in October, the last earning release, there was a big jump of price like here and then the price was around 300 and then it started to go up to 400. And then you are thinking, well, maybe I should buy. You know, it's going up so much and then it goes down a little and then it goes up to 500, right? And then you start to feel that you're missing out a big opportunity because well, if I buy, if I bought when it was a 300 now I would have made already. Well, 200 out of 300 is what, not 100%, but, but not so far. And actually it went later to 600, so you would have made 100%. That's crazy, right? Now at this point, if you have not yet bought, then then basically you, you are in right to say, well it's going up so much, I have to enter, right? And then maybe you enter and then you start to see the price going to 650. And then look at here, the next earning crazy, it went to 800. And you feel so smart, right? So intelligent, so easy to make money, right? But then what happened in other videos I say that when the price start to go up and is very far from the moving average, so it's growing parabolically, then eventually will come down and that's what happened recently. It almost touched 1,000 and then it went down to 750. Now a few things here to mention, number one, emotions. I mentioned this in other videos, but the idea is that if you let your emotion drive your decision, then you will not be successful usually because the fear of missing out will basically push you to buy when the price is very, very high. And then it will go down. And then when it's going down then you will have the fear, right? And then you will sell. So eventually what you do well, you buy high and you sell low. That is a very good way to lose money. And the other thing is that some people, when they saw the price going up so much, they started to short sell. So they were betting that the price will go down. The problem with short selling is that first you have unlimited risk because if you are going long, the worst case is when the price goes to zero. And that's what can happen. But we short sell, you are losing money when the price goes up and technically can go up to infinity. So imagine that you short sell here, right? Because you feel that the price is already very high and then the price is jumping up, then you will lose money. Especially when you are in situations like that where you have gaps, right? Because when you have a gap, basically your stop loss will not be triggered at the level you expected. So you may lose even more than what you expected. And now you may think, okay then what should I do? Is it a good time for short selling or to buy more? Now to answer to this, I want to show you something first. So currently we are around seven. Seven, what's that? 750. Okay. And if you look at the distance between the current price and the moving average is almost 40%, meaning to say, is still very overextended. So in my opinion it's still risky to enter now because it can go down and touch the moving average maybe. So going down to me, not really. What about short selling? Well, for short selling I want to show you something on Finviz and what I want to show you is this short float. Now short float is basically an indicator that is telling you how many people are short selling. Okay? And usually when this is above 8%, I mean when you here you have almost 20%. With this number it means that the amount of short sellers is very high. So what is the risk of that? The risk is that imagine many people are short selling now and then you also short sell. If the price goes up, probably the stop loss of all these short sellers will be triggered. They will trigger an order to buy. And this means that there will be a big jump in price. This is something called short squeeze. In other words, it's very risky to short sell now. So what to do? Well, the best thing to do in my opinion is nothing. Because yes, it's true that if you bought here and then you sold there, you would have made a lot of money. But you never know. If you look at the past, Tesla is so volatile that you cannot even predict something like that. Like if you look at the previous movement, this kind of trend was completely abnormal, right? And it seems similar to the bitcoin bubble if you think about that when the price reached almost 20,000 and then people were just buying because of fear of missing out. So my point is this. There are so many companies in the market that you can do research on, can be actually better if you want to do a long term investing. And also if you want to trade, they can offer you better setup than this. So don't feel that because this opportunity is Missed, then everything is over. No, Every day you will have many opportunities on the stock market, ETF market. There are so many that if this one, well, you were not in, then okay, no problem. Tomorrow you will find more. But don't become obsessed with a stock just because you miss an opportunity. Then you need to kind of take revenge of the market. Or even worse, if you lose money here because maybe you short sell here, or maybe you buy when it was too high. Don't fall into the trap of thinking that well, I have to make money on this stock, otherwise I don't feel good. You should not care about that. If your objective is to make money, just follow your rules. Look at the setup that you want to trade and everything else, forget about it. Okay, so with this video I just wanted to touch again the topic of emotions, how they affect your trading and investing. And this Tesla offer a good example of a bubble, in my opinion. Now I don't know if the price will go up or down, but as I said, I don't care because to me this is not good to buy, not good to sell. It's not a setup that I like because it's too far from the moving average for going long. And the short, the short ratio here, the short float is too big to. To consider shorting. So again, there are so many opportunities. You don't need to to become obsessed with one stock only and just do your research, follow the rules and everything will be fine. And with that, thank you for watching this video. If you like it, put a like if you. If you don't want to miss other updates, you can subscribe to this channel now. And as usual, see you next time.
