Larry McDonald: ETFs will be holding the bag with overpriced Tesla if it joins S&P 500

Larry McDonald, editor of The Bear Traps Report, believe the recent run is driven not by fundamental strength, but by investors bidding up shares ahead of the company’s potential inclusion in the S&P 500.

“By buying up Tesla TSLA now, front-runners are forcing the S&P Indexes to give the stock a higher and higher weighting,” he wrote in a recent note. “Thus, ETFs / Indexes will be forced to pay up, buying even more shares. Then the hot money exits, leaving indexes holding the bag,” he said.

I just saw this on a CNBC article about a Tesla and realized this is a very real possibility. Anyone who didn’t buy Tesla at $800 will get stuck with it when their 401k etfs following S&P500 will buy it at $1,800+

www.cnbc.com/2020/07/13/tesla-jumps-11percent-on-sp-500-inclusion-speculation—now-the-10th-biggest-us-stock-by-market-value.html