Turbocharged Tech Rally Should See Tesla Double Its January Lows

As a result of a breakneck rally for growth stocks, Tesla's shares are poised to double in value and a big price cut is helping to boost demand.

During US pre-market trading on Jan. 6, shares of the company jumped as much as 4.1% to $209.50, indicating a 106% gain over their intraday trough from Jan. 1, 2018. In the aftermath of the Fed's aggressive rate-hike cycle culminating at the end of the month, investors are piling back into a range of growth stocks, hoping the Fed's rate-hike cycle will reach its conclusion soon.

There has been an uptick in value for the Elon Musk-led company as well, as impressive earnings and a spate of positive headlines on tax credits for electric vehicles have contributed to the boost in stock prices. At the same time, a major price cut that Tesla announced in January seems to be working rather well. Now, the company is seeing an increase in demand for its cars.

According to Eric Schiffer, CEO of Los Angeles-based private equity firm Patriarch Organization, Tesla's share price is rocketing so fast because the market believes that the Fed will save the day," said Schiffer. A strong fourth-quarter performance along with "price cuts to turbocharge demand" also played a part in the success, according to Coville.

As the stock has become increasingly popular among individual shareholders in recent weeks, there may also be some explanation for some of the gains, given the surge in speculative trading in recent weeks.

In the first half of the year, Tesla has definitely been the main target of retailers when it comes to buying, said Marco Iachini, senior vice president of Vanda Securities, who spoke on the matter. The fact that retail investors are purchasing Tesla shares is not unusual, given that Tesla is "the ultimate retail favorite," according to Iachini. However, Iachini said that the persistence and magnitude of the stock flows are quite surprising.

Despite the shares having doubled from the lows, they are still at their highest level since the beginning of November, which means it will take a while for them to recover their slide of 65% last year.

It appears that Wall Street is not expecting a big upward move in the shares as a result of this rapid rally. At present, they are trading just above the average analyst price target as tracked by Trade Algo. According to Tesla's relative strength index - a way of measuring whether a stock is over or under-bought - there is evidence of excessive buying of shares in Tesla - typically signaling to the market that a decline is about to occur.