Tesla Is No Ponzi Scheme - But It Will Trade Like One

The most interesting stock in the market right now is Tesla (TSLA) .

Many traders and investors are agog at the move that is taking place in the shares. It is close to doubling in the last 10 trading days and is absolutely crushing the shorts that were predicting that the stock would be a zero, not so long ago.

Stocks that make moves like this are a fairly common phenomena in the market. Tesla has a large market cap and a higher profile than most so it is receiving more attention. However, two recent examples are Beyond Meat (BYND) and Tilray (TLRY) .

Tilray hit $300 before it collapsed to its current price around $18. Beyond Meat hit $240 and is now around $112.

Another example of this sort of action is Bitcoin. Grayscale Bitcoin Trust (BTC) hit almost $39 in late 2017 and is now around $10.50.

I liken this sort of action to a Ponzi scheme. The move is dependent on buyers believing that more buyers will come along and pay an even higher price. The fundamentals become meaningless as the main focus is on sustaining momentum. There are usually some brave shorts involved as well that help to keep the trend going.

If you are interested in trading this sort of action, keep in mind that it is an exercise in psychology and not fundamentals or chart reading. There is no way to rationally project how long the action may last. However, the nature of these plays is that they persist longer than seems reasonable.

This is not investing or trading. It is gambling. There is nothing wrong with that as long as you don't try to convince yourself otherwise. Just be aware that at some point TSLA is likely to fall sharply just like all the other similar plays in the past.

At the time of publication, Rev Shark had no positions in any securities mentioned.