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How Far Can the Tesla Rally Go From Here?

Tesla stock rallied more than 750% in 2020, marking an incredible and unlikely run. Here's what the stock might do from here.

It wouldn’t be a fitting end to 2020 if Tesla  (TSLA) - Get Tesla Inc Report didn’t rack up one more all-time high.

The stock did just that, up about 3% on Thursday and clearing $700 for the first time. With the rally, Tesla’s market cap has swelled beyond $675 billion.

The run has been absolutely remarkable. Shares of Tesla are up 756% so far on the year. From the summer 2019 low, Tesla stock is up even more, almost 1,000%.

If this was a smaller stock, it would still be an impressive feat. For instance, Nio  (NIO) - Get NIO Inc. (China) Report is up more than 1,100% in 2020.

However, given the size of Tesla, it’s this year’s most impressive stock to me. It’s also the top-rated stock by The Street for 2020.

And the bulls want to know: can the gains continue in 2021?

Trading Tesla Stock

Daily chart of Tesla stock.

Daily chart of Tesla stock.

When you factor in the financials and the valuation, it’s quite difficult — in my view, at least — to justify this type of rally. 

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Whether Tesla is an energy company, an automaker, a future autonomous delivery service or all three, this is a lofty stock.

It’s now the sixth-largest U.S. stock, just a bit behind Facebook  (FB) - Get Meta Platforms Inc. Class A Report. Will it be the next $1 trillion name? After this type of move, we can’t rule it out.

With Thursday’s upside breakout over $695, Tesla bulls may have their eye on a run up toward $782. That would take the stock to the 261.8% extension, as measured from the September low to the preceding all-time high.

The Palo Alto, Calif., company's shares screamed higher into the stock split, before experiencing a violent correction. That was followed by several months of sideways consolidation before earnings propelled it higher.

Since then, the 10-day and 21-day moving averages have been guiding it higher. Some of the larger short-term dips have been buoyed by the volume weighted average price measure.

Sorry, bears, but until these measures fail as support, it’s hard to get overly negative on this name.

I don’t know when this train will stop chugging higher, but eventually a retest of the September high and subsequent November breakout level near $500 may be in order.

While that would mark a 30% decline from current levels, I wouldn’t say that it’s out of the realm of possibility at some point. For now, though, we are not straying from the trend, which continues to reward shareholders.

Caution can be exercised if we see a sharp move back below $695 in the short term. Otherwise, $750-plus is possible.