Tesla Motors Inc (TSLA) heads into its quarterly earnings announcement tomorrow in a must-win situation for the bulls — at least from a technical perspective.
To say that Tesla stock is volatile would be an understatement. Since February 2014, TSLA shares have traded up and down within a range that represents a 50% move from bottom to top. For long-term investors, a range like this can be a nuisance … but for traders, it’s a dream.
Heading into earnings, TSLA sits just above some critical technical trendlines that may determine whether Tesla stock heads back toward its trading range bottom at $200.
Tesla Stock Charts
First, let’s look at Tesla’s long-term technical support.
Tesla’s 20-month moving average currently is situated at $228. From a technical perspective, the 20-month is the line of demarcation between a bull or bear market for stocks. A break below this trendline will increase selling from those technical traders (and yes, also the computers), likely adding to the selling pressure.
Second, the intermediate-term techncials:
As luck would have it, TSLA’s two most important trendlines for the intermediate- and short-term traders are sitting at almost the same level. As of today, the 50-day and 200-day moving averages are positioned at $228 and $226. This confluence of trendlines should help to support prices under normal circumstances.
You’ll notice now that all three of the key trendlines discussed are sitting right at $228. This ratchets up the risk of a technical selloff in Tesla stock, as both technical investors and traders would have significant breakdowns on a move below $228.
To say that the pressure is on for a good earnings report is an understatement.
So where from here?
Given the wide trading range that Tesla stock has developed over the last two years, the smart move from a technical perspective is to not position yourself in TSLA ahead of the earnings announcement.
Instead, wait for the earnings to act as the catalyst for the technical to play out. With approximately 20% is downside potential if the stock breaks below $228, it’s worth the wait.
On the other hand, at Tesla’s current levels, an earnings beat and a successful test of these critical trendlines could target the top of the range at $280, which ironically is also 20% from current levels.
As of this writing, Johnson Research Group did not hold a position in any of the aforementioned securities.
