Elon Musk becomes the world’s richest person: How far can TSLA soar?

Any time a trading instrument is in the midst of a parabolic move, risk management is critical.

New Highs 3

We’ve repeatedly checked in on Tesla Motors (TSLA) in recent weeks (including already on Monday by my colleague Fiona Cincotta), but frankly, the price action in the stock demands it.

At this point, even superlatives aren’t enough. TSLA shares are trading higher for the eighth straight day and nearly hit $900 this morning after eclipsing $800 for the first time yesterday (…and $700 for the first time on Monday). They’ve doubled in less than two months. The company recently eclipsed Facebook (FB) to become the fifth largest company on the planet by market capitalization. Just yesterday, Tesla founder Elon Musk eclipsed Jeff Bezos as the world’s richest person, with a net worth approaching $200,000,000,000.

Technical view

With euphoria over the shares reaching a fever pitch, the stock is certainly vulnerable to a quick reversal if momentum falters. After all, even a stock-specific -20% “bear market” would only take prices back to around $700, where they ended last week.

That said, in the infamous words of John Maynard Keynes, “the market can remain irrational longer than you can remain solvent.” Countless bears have been wrecked by shorting the stock over the last half decade, and there’s no reason it can’t continue to rise from here in the short term.

Any time a trading instrument is in the midst of a parabolic move, risk management is critical. In the case of TSLA, bullish traders could use a short-term moving average, like the 8-day EMA, as a possible stop loss area. If the stock breaks below that price, it could signal that a deeper pullback is in play. Likewise, rather than blindly shorting at these stratospheric levels, TSLA bears could wait for a breakdown below the 8-day EMA (or, more conservatively, a bearish crossover of the 8-day EMA back below the 21-day EMA) to consider short entries with a tight stop loss.

Source: GAIN Capital

To use an analogy, when you see a runaway freight train, don’t stand in front of it hoping it will turnaround; either hop aboard or wait or wait for to start slowing down before reversing!

Learn more about equity trading opportunities.

More from Tech Stocks

Disclaimer: The information on this web site is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement. The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.

Futures, Options on Futures, Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Losses can exceed your deposits. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Before deciding to trade forex and commodity futures, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that we do not provide any investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. References to Forex.com or GAIN Capital refer to GAIN Capital Holdings Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.

Open an Account