A major disconnect between Tesla shares and bonds is signaling problems for the stock, says market watcher

Following Tesla's tanking junk bond late last week, one macro strategist is pointing to the detachment between the company's stock price and bond performance as a warning sign.

Larry McDonald, editor and founder of the Bear Traps Report, told CNBC's "Trading Nation" that a "disconnect" between the stock's massive market capitalization and the company's withering bond price is concerning. Here are his reasons why.

• There is a clear disconnect between Tesla's sizable $45 billion market cap and the company's bonds, yielding around 7 percent after Moody's downgraded the credit rating late last week.

• Even as the stock has seen a bit of a rebound since hitting a year-to-date low of $244.59 per share earlier this week, its debt has not made the same rebound; this is a serious disconnect, and it's likely that the stock is "wrong" and the bonds are "correct."

• The central concern for the market is Tesla's immense cash burn; Tesla last quarter reported negative free cash flow of $276.7 million, and negative $1.4 billion the previous quarter.

• It is plausible Tesla could turn to convertible bonds to raise fresh capital. Such a move could pose a risk for equity shareholders.

Bottom line: The disconnect between Tesla shares and the company's corporate bonds could be signaling trouble ahead.

Vote to see results
Total Votes:

Not a Scientific Survey. Results may not total 100% due to rounding.


Trades to Watch

Trader Bios


Trading Nation is a multimedia financial news program that shows investors and traders how to use the news of the day to their advantage. This is where experts from across the financial world – including macro strategists, technical analysts, stock-pickers, and traders who specialize in options, currencies, and fixed income – come together to find the best ways to capitalize on recent developments in the market. Trading Nation: Where headlines become opportunities.

Michael Santoli

Michael Santoli joined CNBC in October 2015 as a Senior Markets Commentator, based at the network's Global Headquarters in Englewood Cliffs, N.J.  Santoli brings his extensive markets expertise to CNBC's Business Day programming, with a regular appearance on CNBC's “Closing Bell (M-F, 3PM-5PM ET).   In addition, he contributes to CNBCand CNBC PRO, writing regular articles and creating original digital videos.

Previously, Santoli was a Senior Columnist at Yahoo Finance, where he wrote analysis and commentary on the stock market, corporate news and the economy. He also appeared on Yahoo Finance video programs, where he offered insights on the most important business stories of the day, and was a regular contributor to CNBC and other networks.

Follow Michael Santoli on Twitter @michaelsantoli

Read more