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TSLA – Tesla Stock Set to Tank?

Tesla Motors (TSLATSLA stock tesla) has been on a tear in 2013 that has seen the stock soar roughly 440% as of this writing. However, TSLA dipped below both its 20- and 60-day moving averages on Thursday of last week, and Tesla stock could be in trouble as a result.

The Tesla Model S battery fire is adding to the negative buzz, but for investors, the sentiment behind that event is much more important than the news.

Sure, TSLA could just shrug this battery fire and technical snafu in its chart. Tesla stock has already added about 8% from its lowest point Thursday, and after up days for TSLA on both Friday and (so far) Monday, it seems the breach of the moving averages is no big deal and that the Model S battery fire might be overblown.

But investors need to start treading carefully in TSLA.

The technical outlook has been strong for months, with shorts getting squeezed out of Tesla stock and sentiment screamingly bullish.

However, while there are a lot of bears still betting against Tesla, the likelihood of a dramatic short squeeze is much lower given the huge volume in Tesla stock. Consider that back in October 2012, it would have taken more than a month of trading at normal volume to process all the short sales; 31 million shares of TSLA stock were held short, but average volume was around 700,000 a day. Now, short interest is down to 21 million or so, but volume is an amazing 9 to 10 million shares of Tesla stock traded daily — a much more liquid (and thus less volatile) marketplace for TSLA.

While a lower percentage of bears would seem a positive development, TSLA actually has short squeezes to thank for much of its 2013 gains. So when you couple this lack of short-squeeze catalyst with a near-breakdown of the moving average and a rather ugly recent headline about a fire that started in a Tesla Model S battery … well, the big run in Tesla stock is looking a bit shaky.

Of course, the bears have been betting against TSLA stock all year with no success. So bet against this electric vehicle icon at your peril.

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Jeff Reeves is the editor of InvestorPlace.com and the author of The Frugal Investor’s Guide to Finding Great Stocks. As of this writing, he did not hold a position in any of the aforementioned securities. Write him at editor@investorplace.com or follow him on Twitter via @JeffReevesIP

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