Tesla’s intraday slide in Tuesday trading is indicative of a telling pattern - when stocks suddenly lose momentum in a rising market, there’s a very good reason for that.
That’s the takeaway from James “Rev Shark” Deporre, who’s looking at a slew of high-beta PE names that lost some luster early this week.
“Although it’s not very visible in the indices so far, the market is being hit with some significant rotational action that is helping to deal with some extended stocks and frothy action,” Deporre wrote on Real Money. “The most obvious example is Tesla (TSLA) - Get Tesla Inc Report which was flying higher [Tuesday] morning due in part to a gamma squeeze. When that pressure ended, there was a sharp reversal that dropped the stock from $1,095 to $1,001.”
In addition to the sharp turn in Tesla, other high-beta high PE names like Upstart Holdings (UPST) - Get Upstart Holdings Inc. Report and Affirm (AFRM) - Get Affirm Holdings Report have also hit the skids. “There has also been some crazy action in SPAC names, but many of them reversed,” Rev Shark said. “The SPAC, Digital World Acquisition (DWACU) - Get Digital World Acquisition Corp. Report, for example, is down more than $100 from its highs last week.”
Other factors are slowing down market performance. Small-caps, for example, are lagging “When small-caps lag, bids dry up, and even the best values can sink further,” Deporre noted. “Valuation just doesn't serve very well as a means of support when there are so few buyers.”
While the market remains in an uptrend, stocks do need to reset periodically.