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Wait for $100 Before Buying Tesla

NEW YORK (TheStreet) - Electric automaker Tesla Motors (TSLA - Get Report) reported better-than-expected results and the shares are crashing as I write this. Surprised? Not everyone is. The company's short interest is approaching 30%.

TSLA Chart

Let that sink in for a moment if you're considering buying or already own Tesla. Almost one out of every three shares on the open market has been borrowed for the purpose of selling it short because that much money believes the shares will decline in value.

I know many will be quick to point at short sellers as nefarious colluding culprits destroying the company; however, nothing could be further from the truth. Short sellers are saving shareholders' collective rear-ends right now. I'll get back to why in a moment, but let's examine the valuation first.

A few months ago, when Tesla was trading around $250 a share, I tried to warn and explain that a company's stock is not the same as the underlying company. In the open auction markets, capital allocation is based on the company, but it is also about market sentiment.

Must Read: Tesla Is Plunging, But It's Not Why You Think

Smart investors know that emotion plays a key role in pricing any given security at any given moment. The flash crash comes to mind as the best recent example of emotion trumping logic. During the flash crash, a friend of mine who is one of the most astute traders I know bought shares of Apple (AAPL) for about $200 a share and sold the same shares for about $240 later the same day.

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TSLA $240.76 0.00%
AAPL $93.74 0.00%
FB $117.58 0.00%
GOOG $693.01 0.00%
YHOO $36.60 0.00%


Chart of I:DJI
DOW 17,773.64 -57.12 -0.32%
S&P 500 2,065.30 -10.51 -0.51%
NASDAQ 4,775.3580 -29.9330 -0.62%

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