The Next TSLA

Back in the old days, it used to be retail investors buying small cap stocks looking for the next MSFT.  Of course, they don't realize that MSFT was never a small cap stock, it went public in 1986, and had an initial market cap around $700M, which would be several billion in today's dollars.  Of course split adjusted, the IPO price was in the pennies, and that's how naive investors convince themselves that buying these low dollar stocks that often got public through a reverse merger are somehow going to become the next MSFT.  Same with TSLA.  It IPO'ed in 2010, and had an initial market cap of $1.7B, so it was also never a small cap stock.  

But retail investors never let facts get in the way of a good story, or a wild imagination and far fetched dreams.  Would you want to drive a car like that pictured there? (SOLO)  Imagine getting into a car accident with a SUV with that car.  And that company traded at a billion dollar valuation a few days ago, before daytraders fled the stock after Citron Research did a quick tweet bash job.

There are tons of these EV stocks, and EV-related stocks, that have gone parabolic over the last week.  These are internet stock in 1999 type of moves that we're seeing here.  It is a stronger and deeper move than the Covid pump and dump stocks this summer.  It all feeds from the ridiculous up trend in TSLA, once it was announced that it was entering the S&P 500, which will happen on December 18 at the close.  By that time, all the index funds will be buying their TSLA shares, and it is a ton of shares, from all the front runners who have bought ahead of them and will release their inventory just when those index funds need it most.  Probably right near the top of the move.  

What I noticed about the EV plays is that most of them are Chinese stocks.  The Chinese pumpers are a step ahead here, as they are selling the most sought after shares in the retail investing universe.  These companies are looking to feed the ducks with grossly overvalued paper, which are sold to dump cash into the coffers of the company, to spend it on who knows what, anything but cash spent on generating future profits, but more likely just a piggybank for the company insiders.  The corporate governance in China is probably one of the worst in the world, so anything goes.  Just look at the Shanghai Composite 20 year returns, it is way behind the Chinese inflation rate, and performing much worse than a simple investment in Chinese government bonds.  

Anyway, there isn't much interesting happening in the macro world, as is usually the case during a strong bull market.  I will probably sell the remaining longs on Friday, and look to put on a small SPX short looking for a pullback next week.  The much talked about large pension fund selling rebalance doesn't seem to have materialized, or if it has, they've done a very good job of disguising their purchases with no market effect. 

Most of my trading focus lately has been in the EV stocks, where volatility and trading volumes are through the roof.  When retail traders are actively involved, I want to be there.  Tuesday looks to have been a short term top for the EV sector as a whole, and I expect a choppy downward move for the next several days.  Unlike the past week, gap ups in these stocks will probably be good fades for the next week or so.