Shares of electronic vehicle manufacturer Tesla Motors Inc (NASDAQ:TSLA) fell Thursday after the company’s earnings report. TSLA stock did manage to rally intraday and close at the day’s highs, which offers well-define risk/reward for traders … but active investors need to give this stock more time to prove itself.
For its fourth quarter, Tesla lost 13 cents per share vs. analyst estimates of a 31-cent profit. TSLA also missed on the top line, with $957 million falling short of expectations for $1.23 billion.
While earnings tend to be more volatile for growth companies such as Tesla, CEO Elon Musk during the conference call sounded upbeat about being able to overcome obstacles in Chinese sales and begin production on next-generation Tesla cars over the next two years.
Following the news, many analysts were quick to raise red flags. JPMorgan, for example, downgraded TSLA stock from “neutral” to “underweight” and lowered the price target from $180 to $175.
The last time I discussed Tesla (Dec. 2), I said TSLA stock felt heavy and looked likely to fall toward the $200 area. Ten trading days later the $200 target was reached, and the stock has been trading in a choppy range ever since.
TSLA Stock Charts
Looking at the multiyear weekly chart, TSLA stock, after breaking below the red support line and reaching the $200 support level, has further emphasized the importance of this area, as indicated by the blue box. One could label Tesla’s entire price action since early 2014 as a big head-and-shoulders topping pattern that uses the $200 area as its neckline. The fact is, however, that as long as the $200 area holds as support, TSLA stock is more neutrally positioned than bearish at this point, leaving active investors having to wait for a better confirmation that either $200 will hold as support, or snap and lead the stock lower toward the $160 area.
On the daily chart, we see that TSLA stock bounced intraday Thursday and closed the session nearly 5% off the lows. This has now given traders two reverence levels: Thursday’s lows near $193 and the highs near $203.
The obvious trade setup on the upside would be for a quick 5% gain to fill Thursday’s down-gap near $212.50, whereas if TSLA would drop below $193, a better tactical multiweek or multimonth short position could be entered with a price target closer to $160. Risk/reward is well defined here after the earnings report.
Like what you see? Sign up for our daily Beat the Bell e-letter and get investment advice delivered to your inbox every morning!
Download Serge’s trading plan in the Essence of Swing Trading e-book here. As of this writing, he did not hold a position in any of the aforementioned securities.
