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A total car crash

June 16, 2022

I am revisiting the Tesla chart because it looks terrifyingly like a top. The fundamentals sound great and I believe that Tesla is going to become a huge business, one of the world’s great car companies and maybe autonomous driving, transport as a services, solar power, robots and who knows what else are all coming but in this market fundamentals just don’t count. It’s all about the chart, which looks scary.

If this top breaks down and as I argued in an earlier alert it may well already have done so there is no support, nothing until we get to dramatically lower levels, like a tenth of the current price. If this stock keeps on falling there is going to be an avalanche of short selling and maybe also forced selling as bulls unwed their margin accounts and ETFs reduce their positions.

Tesla has been the poster child of a decade long bull markets so it is somehow only fitting that the unravelling of that bull market should spell disaster for the shares. If they do fall as I fear they are going to that will be another nail in the coffin of a spectacular bull run.

I have been updating my tables of shares and ETFs and it is a perfect storm out there. There are flickers of life for Chinese technology shares which have already had their wipeout but elsewhere it is total negativity. My indicators across the board are pointing down, down, down.

Strategy

What is going on? How about this as a theory. Ever since 2009 the fiscal and monetary authorities have been pouring stimulus into the global economy. Against a background of globalisation, accelerating technological innovation, new ways of powering and valuing corporate growth, a tidal wave of share buybacks and interest rates and bond yields that in some centres went negative share prices have been in a sustained bull run interrupted by brief panics.

Covid was like the final straw as it triggered even more frenzied reflation by the authorities while work from home gave a massive boost to e-commerce and technology generally.

But then Covid ended and a world awash with money started to try to resume normality and even catch up with all those things people weren’t able to do during seemingly endless lockdowns. Demand exploded and left supply far behind putting a rocket under inflation. Then instead of Covid we had Putin attacking Ukraine affecting supply chains for energy and food even more.

So what does this mean for the people tasked with running the global economy, many of whom are politicians in desperate need of votes. It means they are having to make a massive change of course from pumping to damping. It is hard to do this, hard to get it right when so many effects are unpredictable and or delayed and the law of unintended consequences is lurking at every corner.

It is like they have had to take their foot from flat down on the accelerator to slamming on the breaks. No wonder share markets are screaming.

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