Is Tesla a sign of irrational exuberance in the market?

Tesla was the talk of the town this past week given its meteoric rise. It was due to a combination of heavy short interest combined with a rush of cult like buying from novice investors due to so called  "good earnings news". Yes, the move in Tesla is a bubble but it may not necessarily be ready to burst just yet because from what I can tell, there's still a lot of short interest in the stock and there's no shortage of doubters looking at this big move up as opportunity to bet against Tesla because they know it's a bubble. The problem with these bears is that they often end up being their own worst enemy because they underestimate how long and how far up the run goes on for and end up capitulating which adds fuel to the fire. Tesla right now is very much a cult story stock which has captured the attention of novice retail traders and so until there's some significant bad news to derail it, it will probably go sideways or drift down a bit for a little while until the next "good news" announcement comes out to propel it up again. Only when most people are all in and the weak Tesla bears are cleaned out and too afraid to bet against it, will the bubble be primed to burst. That's my hunch. Some might argue that most people are  already all in. Maybe that's right but from my anecdotes, I'm not so sure about that. I think a lot of people have been wanting to buy but missed out. The other thing that could derail Tesla would be if the stock market in general sells-off hard. All in all, if I had to make a prediction I think there will be one last run up in the stock after perhaps some consolation.

So, does the bubbly action in Tesla represent the general sentiment towards the stock market overall? The answer is no in my view. Just like the moves in weed stocks and bitcoin, the euphoria is isolated i.e. not broad based. Once again, I will point to the fund flows and sentiment indicators. Flows into equity funds are still flat and AAII sentiment was quick to go from mild bullishness to mild bearishness with just a little dip in the market and as the market rebounded to hit new all time highs sentiment remained stubbornly bearish. As I mentioned last time, AAII sentiment only reluctantly turns bullish when the market has a strong move up but is quick to tuck tail and turn bearish with just the modest of declines. That to me says there's still a cautious undertone to this market overall which has bullish contrarian implications. In a bear market you will see the opposite. You will see bullish sentiment rise sharply on rallies and bearish sentiment rise stubbornly on declines.