Shares of Tesla Motors Inc (NASDAQ:TSLA), much like the broader stock market, kicked the new year off with a sharp selloff. Tesla stock in specific is off more than 15% so far in the new year.
In the near-term, this selling pressure is getting increasingly overdone, so a good bounce (or at least a pause in selling) could be near. However, looking at TSLA shares through a multi-month/quarter lens shows that Tesla Motors may have much further to fall.
Active investors and traders alike should look to sell the rallies using stock or options strategies.
As we are heading into corporate earnings season, I would be remiss not to highlight that TSLA is scheduled to report its next batch of earnings on Feb. 9, which may or may not move Tesla stock. Either way, active investors should circle this date to watch for price action.
As we will see on the bigger-picture chart of Tesla’s stock price, however, even a positive surprise on the earnings front at this stage will find it difficult to repair the chart through a multimonth or multiquarter lens.
Tesla Stock Charts
Getting right to the wood, so to speak, the multiyear weekly chart shows how quickly TSLA accelerated higher in 2013, and throughout 2014 and 2015 began building an important topping pattern. If we look closely, we see that last year’s high was marginally lower than that in 2014, and that a double top formation may be at hand.
All of this is weighing on horizontal support around the low to mid-$180s, which has acted as support twice in the spring of 2014 and 2015. A break of this area will ultimately beg for the stock to fall into the low $160s or even toward the $130s, which represents a 50% and 61.8% Fibonacci retracement, respectively, of the entire bull rally from 2013 into the 2014 top.
To be clear, while this multiyear chart begs for much lower prices still in Tesla stock, I do think the company will continue to grow and do great things — and in turn, TSLA will become a great buy again.
The lesson: Never confuse overbought or oversold price action with longer-term fundamentals of a stock.
On the daily chart, we then see that after Tesla stock slipped another 4.6% in Wednesday’s session and broke below its summer 2015 lows, a next near-term target for TSLA may become the early 2015 lows and the aforementioned bigger-picture support area in the low to mid-$180s.
While quicker traders may still try to play Tesla stock to the downside into this support area, more tactical and risk averse players may want to a) look to buy the next confirmed bullish reversal for an oversold bounce and b) subsequently look to sell into or short this bounce as it runs out of steam.
Where could TSLA find resistance upon an oversold bounce? The $210-$220 area may provide initial resistance where either short call spread strategies or just shorting stock could be re-initiated.
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