- Tesla’s parabolic year-to-date rally could continue into year-end as momentum stocks regain their footing, according to Fairlead Strategies’ Katie Stockton.
- Tesla is the largest holding in the Momentum ETF MTUM, and a recent breakout to new all time highs for that ETF bodes well for Tesla.
- With momentum stocks regaining their footing after two months of underperformance, Tesla could rally 10% to a targeted breakout level of $716, Stockton said.
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Tesla’s parabolic rally in 2020 isn’t over, according to technical analyst Katie Stockton, founder of Fairlead Strategies.
Tesla has rocketed 677% year-to-date as of Tuesday’s close, as investors assign an outsized premium to electric vehicle manufacturers and their expected growth in the coming years.
What bodes well for further gains in Tesla stock is a recovery in momentum stocks over the past few weeks, Stockton told clients in a note on Wednesday, as evidenced by the recent performance in the Momentum ETF MTUM.
Tesla, which is the largest holding in the MTUM ETF, stands to benefit from a continued uptrend in momentum stocks. Stockton notes that the ETF has broken out to new all-time-highs after lagging the broader market for most of October and November, according to the note.
On top of that, relative strength has turned back in favor for the momentum ETF, making higher lows within its gradual long-term uptrend relative to the S&P 500, Stockton said.
"The ratio [momentum stocks relative to S&P 500] has room to resistance, supporting additional near-term outperformance by MTUM's holdings, the largest of which is Tesla," Stockton explained.
The breakout to fresh highs in the MTUM ETF "should foster positive momentum [for Tesla] with a targeted level of $716 from the breakout," according to Stockton.
And for Tesla investors who are considering taking profits, Stockton suggests they monitor the slope of the 20-day moving average, which can be used to gauge short-term momentum, according to the note.
Tesla stock, and in effect its investors, have exhibited extreme strength recently, as evidenced by the stock closing higher on Tuesday after the company announced a $5 billion at-the-market offering.
