A Blow Off Top is in the Making

Tesla stock has experienced a monstrous run from its January’s low of $101.81 to an intra-day high of $235.23 on Thursday. The rally has been propelled by a series of significant developments in the company, lifting the share price by 130% in the short span of five months. The latest rally from the April low alone has advanced 55%, on rumours Tesla is negotiating the construction of a new, massive €4.5 billion ($4.8 billion) Gigafactory in the metro area of Valencia, Spain.

A speculation swirls that France is in the Gigafactory target list too before Elon Musk even headed to Paris. While Musk has recently met with the French president saying that he hopes to make a major investment in the country, with his long to-do list, so far, he is just scheduled to attend the Vivatech conference in Paris next week.

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Source: Tradingview

The latest rally has pushed the Relative Strength Indicator (RSI) into extremely overbought territory reaching a reading of 83% on Thursday. The RSI index has reached higher levels on just four occasions since Tesla listed, which were followed by sharp and significant declines.

The strongly overbought momentum conditions send an urgent warning to short-term traders as the rubber band effect is likely to kick in anytime from now. For the highly volatile share price this means that once a short-term top is formed, a decline in excess of 10% could be seen within days. Such overbought readings are associated with blow off tops and provide impeccable timing for traders.

Source: Tradingview

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