Tesla stock is broken, and it's premature to call a bottom as shares will continue to fall through January, Fundstrat strategist says

Tesla founder Elon Musk.Associated Press

  • Tesla is clearly broken since Elon Musk dumped his shares, according to Fundstrat’s Mark Newton.

  • Newton said it was premature to believe a strong rally will take place, and the stock likely has more near-term downside.

  • “The biggest fallacy on Wall Street is that it’s immediately right to buy dips on something that’s down 50%,” he warned.

Tesla stock is broken, and investors can’t bet on the stock rebounding in the near-term, according to Fundstrat global stock strategist Mark Newton.

“The stock is clearly broken. For intermediate-term investors, we almost need to get above the area it broke down … to really think we’re going to start a much larger rally,” Newton said in an interview with CNBC on Thursday, referring to the level around $206 a share from which is began to fall in November.

Getting back up to those levels would mean nearly doubling the current stock price, “and investors can’t really work that way,” Newton warned.

That comes amid a dismal fourth quarter for Tesla, with the stock dropping 60% in less than four months and wiping out $700 billion in market cap. The electric vehicle-maker missed its earnings target in the third quarter and fell short of production and delivery targets, but the drop has largely been spurred by the Tesla CEO Elon Musk, who dumped his own shares of Tesla to fund his $44 billion acquisition of Twitter.

The purchase has rattled Tesla investors, with some urging Musk to step away from the social media company as he faces growing criticism for his leadership style and political tweets and memes. The company is now in its most brutal sell-off since it first went public in 2010.

Musk has vowed to step down as Twitter CEO once finding a suitable replacement, which analysts say could be bullish for Tesla stock. But a major rebound is unlikely in the near-term, Newton said. He noted the stock only starting falling two months ago, meaning fundamentals were still weak.

“The biggest fallacy on Wall Street is that it’s immediately right to buy dips on something that’s down 50%. If 2022 has taught us anything, it’s that it doesn’t necessarily always work out well in a bear market,” he added. “It could have a very sharp bounce, but I think it’s premature to think about that level right here.”

Newton said there could be a buying opportunity for investors by the end of the month when Tesla releases its fourth quarter earnings, though there’s still near-term downside ahead. He added that if the stock fell 10% through January, there could be room for a 30%-50% rebound.

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