Carrying forth with my rotational market thesis, I’ve noticed yet another market leader round over to make way for the new emerging stars. Electric car maker Telsa, which broke out of a massive 2-year long base earlier this year appears to have topped recently. Rising volume on the drop from its $190 drop, and a break of a neckline at around $150 suggest more downside to come. Not surprisingly, momentum indicators, comparative relative strength and money flow all look terrible for this stock on the daily chart too. I didn’t bother posting the daily chart with these indicators—it’s just too obvious even looking at the weekly chart that things are getting ugly here.
The lesson from this chart: enjoy the high-flyers while the trend is in your favour. But be quick to pull the trigger when that trend breaks. Stocks that move this quickly on this much hype in such a short period of time are subject to equally impressive breakdowns. Apple’s move from $700/share to $400/share last year is another classic example of this type of breakdown – and as we’ve seen with Apple, it can take a very long time to return to those lofty heights, if at all.
All good things come to an end
Keep an eye on Best Buy ( Up 400% in 12 months) and Netflix (up 550% in the last 12 months) for an eventual end to their rather dramatic runs. And like the “circle of life” (aka Lion King), another rising star will take their place, creating balance and harmony in the stock market.