Could Tesla be the Ultimate Mania Stock?

Several posts on this site have focused on Zoom Video Communications Inc. (ZM) as a possible guide to timing the broader stock market.  The first post about ZM on 10/15/20 “Additional Elliott Wave Confirmation” noted its clear Elliott wave pattern.  Additionally, ZM because of its spectacular growth prior to its all-time high made it a mania stock.  When a mania stock reaches its climax, it could be a sign of a nearing peak in the broader market.    

There’s a high probability ZM may have climaxed in October 2020.  However, Tesla Inc. (TSLA) has also had a spectacular run up and could end up being the king of all mania stocks for the 2020 to 2021 bull phase. 

The daily ZM chart courtesy of Trading View gives us a template to compare TSLA.

The 200- day Moving Average (MA) is a great tool to compare growth rates.  At ZM’S all-time high it had a growth rate of 1.665 above its 200- day MA and 8.657 above its major bottom made in October 2019.

Now examine the daily TSLA chart.

So far TSLA has a growth rate above its 200 – day MA of 1.535 slightly less than ZM.  However, its growth rate since March 2020 is 11.617, faster and greater than the one-year growth of ZM. Also, note  that since TSLA all-time high it’s been in a narrow shallow decline.  When you see a market, or a stock make a rapid ascent followed by a sideways movement, it is in most cases  just a correction prior to another thrust to new highs.

If TSLA continues to make new highs, there’s a good chance the broader US stock market could continue higher. 

If the broader bull trend is still alive, should ZM and or TSLA be bought?  No. 

The 11/08/20 post “Zoom Update” noted that bearish signals made on 11/02/20 weakened the case for buying ZM.  So far while the broader US market has continued to rally, ZM has fallen 43% from its all-time high.  You want to avoid weak stocks in a strong bull market.

As for TSLA, its nearest support zone is in the low 600 area, which is more than 25% below its current level  – too much risk for a trade.      

View ZM and TSLA as additional guides for the broader US stock market.  Many  stock market analysts/traders focus on price patterns from a few indices.  To help improve your chances of speculation gather evidence for all four market dimensions.  This includes the actions of key stocks within the market.     

Published by Mark Rivest

Independent investment advisor, trader, and writer. Articles have appeared on Technical Analysis of Stocks and Commodities , Traders.com Advantage, Futuresmag.com, and Finance Magnates.

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