Dear Valued Visitor,

We have noticed that you are using an ad blocker software.

Although advertisements on the web pages may degrade your experience, our business certainly depends on them and we can only keep providing you high-quality research based articles as long as we can display ads on our pages.

To view this article, you can disable your ad blocker and refresh this page or simply login.

We only allow registered users to use ad blockers. You can sign up for free by clicking here or you can login if you are already a member.

Tesla Motors Inc (TSLA) Finally Peaking on Nasdaq-100 Inclusion

Historical research from Schaeffer’s shows that stocks entering the Nasdaq-100 shouldn’t be bought at that point. Typically the best stock to buy is the one leaving an index such as the Nasdaq-100. In the normal scenario, a company that leaves such a big index has faced a couple of weak years and the exclusion from the list places extra pressure on the stock: in essence, a catalyst that helps form a bottom.

Tesla Motors Inc (NASDAQ:TSLA)

In the current scenario,  is being added to the list while Oracle Corporation (NASDAQ:ORCL) is moving over to the NYSE effective July 15. In this case, the index isn’t providing the market with a removed stock to investigate for a purchase. It is though providing a major catalyst to help create a peak in Tesla Motors Inc (NASDAQ:TSLA). Ironically though, the price action of Oracle Corporation (NASDAQ:ORCL) would be ideal for a stock leaving the index to scoop up on the lows.

See the one-year chart below:

TSLA Total Return Price data by YCharts

Too much, too fast

Surging Tesla Motors Inc (NASDAQ:TSLA) has soared from below $40 when April ended to over $120 in around three months. The total gain in the last year is nearly 300%. Clearly investors need to be concerned about the stock moving up too much, too fast.

The producer of premium electric vehicles has hit huge momentum as surging oil prices make electric vehicles more attractive while surprising the market with some improved financials. Though the company reported a profit in Q1 2013, it ironically has seen analysts slash forward forecasts. In fact, the 2014 estimates have plunged in the last 90 days from $1.47 to only $0.86. Investors clearly doubted whether the company would ever turn profitable to ramp up the stock on declining expectations. Longs need to be concerned whether the higher stock price will find support if the company struggles to report strong earnings.

Any pop into the Nasdaq-100 inclusion could further strengthen the potential downside if the bubble ever pops.

Oracle removal

Removing Oracle Corporation (NASDAQ:ORCL) at the bottom sums up one of the biggest issues with indexes in general. While the enterprise software stock isn’t terribly volatile these days with a market cap over $140 billion, it is still trading at the low end of the range following an earnings warning back in June. The stock is only down about 15% from the highs, but it is closer to the yearly lows.

DOWNLOAD FREE REPORT: Warren Buffett's Best Stock Picks

Let Warren Buffett, George Soros, Steve Cohen, and Daniel Loeb WORK FOR YOU.

If you want to beat the low cost index funds by 19 percentage points per year, look no further than our monthly newsletter.In this free report you can find an in-depth analysis of the performance of Warren Buffett's entire historical stock picks. We uncovered Warren Buffett's Best Stock Picks and a way to for Buffett to improve his returns by more than 4 percentage points per year.

Bonus Biotech Stock Pick: You can also find a detailed bonus biotech stock pick that we expect to return more than 50% within 12 months.
Subscribe me to Insider Monkey's Free Daily Newsletter
This is a FREE report from Insider Monkey. Credit Card is NOT required.