Trade of the Day: Chart Says TSLA Stock Could Plunge 30%

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Tesla Motors Inc (TSLA) — This automotive pioneer manufactures high-quality, electric-powered sedans and roadsters, and it also supplies advanced electric vehicle powertrain systems to other automotive manufacturers.

The company sells its cars through a “factory only” arrangement with no dealer involvement. And it manufactures only luxury vehicles, so it appeals to a limited base of buyers who can not only afford the cars but are willing to take a risk on a relatively new technology.

Tesla is expected to report its first annual profit in 2014, following a loss in each of the past seven years. But S&P Capital IQ recently cut its earnings estimate in half for 2014, to $0.58 per share, and lowered its 2015 earnings estimate by $0.44 to $2.89 per share.

Its analysts have a 12-month price target of $245 on TSLA stock. However, that would put shares at 85 times their 2015 EPS estimate, making it one of the highest P/E multiples of the major technology stocks and well above the accepted norm for an automobile manufacturer.

Additionally, one of the biggest risks to TSLA stock at the moment is falling oil prices. Lower gasoline prices reduce the advantage of owning an electric vehicle.

Technically, in early December, TSLA stock broke down from a series of shoulders marking a compound head-and-shoulders top. On Monday, nearly a month’s worth of heavy selling finally pushed its 50-day moving average down through its 200-day moving average. This is another negative technical signal, confirming the break of the neckline and a downside target of $150, which is nearly 30% below current prices.

However, Monday’s 4.2% sell-off could lead to a near-term bounce. Sell TSLA stock short at $220 with a three-month trading target of $150. A stop-loss order should be entered at $240.

Short selling is a speculative technique that is only suited for traders with a high risk tolerance. Check with your broker for the ability to borrow shares and any other special requirements.

TSLA Stock Chart
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Article printed from InvestorPlace Media, https://investorplace.com/2015/01/tesla-motors-inc-tsla-stock-trade-day/.

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