Although earnings season is very quickly winding down, some big-name companies have yet to report. One of those is electric vehicles manufacturer Tesla Motors (TSLA). Tesla earnings are expected to come out after the close of Wednesday’s trading, so TSLA stock should be an interesting one to watch in the coming days.
One of my golden rules when it comes to trading during earnings season is to wait for earnings to pass in any given company before making a trade. That’s because guessing how investors will react to a company’s profits, revenues and outlook before the fact is a losing game over time, and much higher-probability trades tend to set up once the news is out of the way.
I understand that from time to time, depending on the skew in the options tables, high-probability trades can set by constructing an options trade before and holding it through earnings. My focus here however is on the stock itself, and for that purpose, waiting until after the initial spike in investor emotions is best.
TSLA stock is particularly vulnerable to investor emotions, with not only earnings on the way, but also a recent report that it met with the M&A head of Apple (AAPL) last spring.
To map out some levels of interest to focus around once Tesla earnings are out of the way, let’s understand that the drop-off in TSLA stock from its all-time highs in October ended up retracing just about 50% of its entire vertical rally from spring 2013. After a couple of weeks of basing above this retracement line — which also roughly coincided with its rising 200-day moving average (red line) — it again began to systematically work its way higher.
Keeping this in mind, TSLA stock is thus currently still going strong off this most recent leg higher, which for those focusing on wave count, might be labeled “wave C” in a big-picture “A-B-C” wave pattern. Through this same lens, TSLA stock has a measured upside target around the $220 mark, give or take $5, which is roughly 10% higher from last Friday’s close. As such, the $220 area is my level of interest on the upside.
Should TSLA stock rally toward $220 after the earnings report, I would view this as constructive price action … but not as a catalyst to chase it higher immediately. Rather, I would then need to see Tesla shares begin to build a new and higher base from which they could then eventually push even higher.
On the downside, should TSLA stock fail back below its previous all-time high from late September (black lateral line), first better support comes in at the confluence area around the $160 level, made up of its 50- and 200-day moving averages.
If Tesla can show some constructive price action around there, I would again be interested in buying the stock.
So, there are the two price areas of interest to me once TSLA reports earnings on Wednesday. Trade ’em well, and please remember that patience much more often than not rewards the active investor.
Like what you see? Sign up for our daily Beat the Bell e-letter and get investment advice delivered to your inbox every morning!
Learn more about the strategies Serge Berger uses to create profits in the market every day. Download his trading plan in the Essence of Swing Trading e-book by clicking here. As of this writing, he did not hold a position in any of the aforementioned securities.