Catalysts For Tesla In 2021

People predicting lower stock prices during the last day before Tesla (TSLA) was added to the S&P 500 index turned out to be wrong. Apparently, index funds bought many shares at the close, to minimize tracking error. That resulted in a new high of $695. Volume was enormous, which is a bad sign for the stock price going forward. People predicting much lower prices during after-hours trading were wrong as well. However, the same bearish investors were correct with their prediction of a push back on the first trading day after Tesla had been added.

Selling now, at the end of the year, is tax-inefficient for most investors in the US. With this year's market performance not many investors can offset their gains on Tesla with losses on other closed positions. I have no doubt that will be much different next year. Therefore I expect a lot of air will escape from this bubble in 2021.

Comparison with 1999/2000 dotcom bubble

Let's have a look at 1999/2000 again. Most investors from today were not around during that time. I would say the bubble from that time is similar to the current bubble but also different. What was the dotcom sector then is now the EV sector. I think other technology stocks are overvalued as well, such as Apple (AAPL), Amazon (AMZN), and Microsoft (MSFT).

Like 20 years ago there are many IPOs but probably not as many as 20 years ago. But nowadays many companies get a listing through a Special Acquisition Company, or a SPAC. When counting IPOs and SPACs together I think new companies have attracted much more new money than 20 years ago, even when corrected for inflation. See here.

While in 1999/2000 most investors just bought shares many investors are also buying call options today. So they use leveraged instruments. I think this leverage has pushed up valuations more than the simple share buying 20 years ago. The downside of a rally from leveraged instruments is that it makes the downside much larger.

Yes, stocks can go down: in the beginning of 2000, they went down without a real catalyst. Instead it is fair to say extra supply with new listings of dotcoms caused the bubble to burst. It was the same with bitcoin (BTC-USD) at the end of 2017 and in 2018. Clever people had created too many competing cryptocurrencies. With the many new IPOs and SPACs Wall Street has shown again that it is extremely efficient at increasing the supply in bubble times. So no exception for EV stocks like Tesla.

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Disclosure: I am/we are short TSLA.

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