Tesla stock has soared this week on easing U.S.-China tensions. Some market watchers say the stock's rally is setting off alarm bells.

Tesla (TSLA) "is flashing overbought technicals,” wrote Matthew Unterman, managing director of research firm S3 Partners. The stock’s Relative Strength Index (RSI) recently broke above 70, a threshold that signals to many momentum traders a stock has risen too much, too fast. 

The last time Tesla’s RSI exceeded 70 was in December 2024 after shares soared to an all-time high following President Donald Trump’s re-election. That preceded a three-month slump that slashed the stock’s price in half, though there were several clear reasons for that: CEO Elon Musk’s government work stoked controversy, while sales slumped and tariff uncertainty rattled the entire stock market.)

Other technical signals also suggest a pullback could be in the offing. Tesla shares recently climbed above the upper Bollinger band, Unterman said, another sign that feverish buying has driven a stock's price higher. That kind of rally is often followed by a modest correction as traders and long-term investors lock in profits.

Tesla’s short interest has hovered between 2.7% and 2.9% since shares hit their year-to-date low in March. Unterman is watching short interest, which he says could increase selling pressure if it breaks above 3%.

“With multiple technical signals aligning—RSI overbought, Bollinger Band breakout, and stable but elevated short interest—Tesla may be approaching a tactical inflection point," Unterman wrote. "If short interest breaks higher, the setup favors increased selling pressure and a potential near-term pullback."

Tesla shares were rising for a sixth consecutive day on Wednesday, recently trading about 4% higher at above $348. The rally has shrunk the stock’s year-to-date loss from 45% to under 15%.