Tesla Motors Inc. (NASDAQ: TSLA) is seeing the price of Tesla stock defy gravity. In the last couple of weeks it looked as though the $97 handle was going to mark a trading top. After gapping up and rallying massively, the electric car maker issued a secondary offering to raise enough capital that allowed Tesla to repay its Department of Energy loan about a decade early and with a profit to the U.S. taxpayer. But after a $7 rally on Tuesday after a 3-day weekend, at least some of the gain in the price of Tesla stock is likely due to short covering.

You might think that a declining short interest and a year-low short interest would not be grounds for saying that short covering is behind a rally. The problem is that Tesla first announced its decision to sell common stock and convertible notes on May 15. While that matches the settlement date for Tesla’s short interest, that is after the actual trade dates that would have counted toward making up that short interest.

The May 15 settlement date had  the short interest in Tesla at 23.04 million shares. This is the lowest nominal short interest seen in Tesla shares in over a year. This is also the fourth straight drop in the short interest after that short interest peaked at over 32.3 million shares in mid-March.

It is very likely that the current short interest is currently higher than what the May 15 settlement date implies. Investors who buy shares of common stock and who buy convertible debt often short their shares on what is considered “short against the box” so that they can have a fixed sale prices that is hopefully higher than when they commit to buy the offering.

Some of the move higher in the price of Tesla stock is actually due to fundamentals. Reports that Tesla is looking at an entry-level car which might rival the Nissan Leaf are likely helping out. Hope of more charging stations may also be driving the fundamentals here, particularly if Musk’s latest financing offers for the electric cars really boost sales. News that CEO Elon Musk was spending $100 million to buy shares in the secondary offering  also helped to minimize some of the fears about dilution.

As we warned when we said the Tesla rally is ending, it is a raging bull market and this bull market is ignoring valuations at a time that alternative energy is doing well for shareholders all over again. We would love to again point out that Tesla’s $12 billion market valuation values it at more than 6-times expected sales, but there is no point. When the bulls get to run freely, it doesn’t matter if the bulls are in a china shop or on the streets of Pamplona.

Tesla shares are up over $7 and are not just over $100 for the price of Tesla stock. The stock is over $104 and this is proving to be one of those stock markets where momentum can overtake gravity, common sense, and valuation. Even if a Tesla short is allowed at a firm, too many investors remember what happened when they short sold internet stocks in 1999. They were right, but if their timing was wrong by even a day or two they might have gone bankrupt.

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