If we didn’t know it to be true, the Tesla Motors (TSLA) saga that has taken shape over the past year or so almost reads like a movie script:
Overcoming many doubters, Tesla CEO Elon Musk successfully launched a zero-emissions electric vehicle that performed as well as a traditional combustion vehicle, and the TSLA automobile didn’t cost an arm and a leg to own. Shares of the company were up as much as 470% at one point this year, driven by sales of more than 19,000 of Tesla’s Model S electric vehicle in just a few quarters. The success not only vindicated Musk, but rewarded investors who believed in Tesla all along.
It was, in literary terms, a textbook example of a story’s exposition … the proverbial beginning of a tale.
The next part of any good fiction plot line is the so-called complication, and right on cue, a few too many fires under the hoods of the Model S vehicle (and the subsequent government investigation) has provided plenty of complication for the TSLA tale.
Tesla stock has plunged 34% in less than two months, and the very idea of a high-powered EV is being called into question.
Unlike most Hollywood-scripted stories, however, Tesla might not ultimately be headed for a happy ending, even though we may see a glimmer of hope in the near future.
What’s Next for TSLA?
First and foremost, any current or prospective shareholders need to understand there’s something of a disconnect between Tesla stock and the company’s value right now. No big deal — it happens all the time, actually.
But, if you’re not aware of it happening, it’s easy to get led into an errant assumption. See, the emotions and opinions driving the stock’s price right now (1) can be fabricated, and (2) can stop and turn on a dime.
With that warning in place, TSLA shares are apt to find a near-term bottom and hint at a reversal right around $111. That’s a near-perfect 50% retracement of this year’s big rally from the stock, and it’s where Tesla stock will encounter the all-important 200-day moving average (green). Point being, don’t be surprised if it looks like the buyers are wading back into the waters there.
Just don’t count on that bounce rekindling the red-hot trend we witnessed over the course of the first three quarters of 2013.
Brace yourself if you’re a fan or shareholder: Tesla’s best days are behind it.
That’s not to say the company or Tesla stock won’t have good days in the future, but the Tesla-mania bubble has popped, and like any other bubble, this one can’t be repaired.
Brewing Pressure on TSLA
The great part about story stocks is that their rallies are self-perpetuating. The higher they move, the more prevalent the story becomes, drawing in new buyers, pushing the stock even higher, making the story even bigger, etc.