On Wednesday after the close of trading, Tesla Motors Inc (NASDAQ:TSLA) reported its latest quarterly results, which at first sight looked anything but tantalizing.
While revenue rose, so too did expenses, and all of this led to a lousy-looking earnings number on a year-over-year comparison. Astonishingly to some traders, TSLA stock hardly moved following the earnings release in after-hours trading on Wednesday, but the charts now give traders two well-defined areas to focus on for potential trading setups.
Specifically for its second quarter Tesla Motors lost $1.06 per share after adjustments, which was roughly twice the size of the loss that analysts had estimated.
At the same time, revenue rose more than 30%. So, given the wide miss on the earnings front, why did TSLA stock not (yet) fall apart as an initial reaction to this number?
While some analysts are raising concerns regarding the increased costs that Tesla is incurring, like most growth stocks, TSLA is mostly being measured by top-line growth and sales.
For comparisons and perspective, Amazon.com, Inc. (NASDAQ:AMZN) for years never turned a profit and continued to ramp up expenses as a result of investments, which investors for the most part tolerated given the company’s ‘growth’ status. As such, while TSLA’s costs should not go out of control, yours truly sees top-line growth and growth potential as the more pertinent barometer by which to gauge TSLA stock.
TSLA Stock Chart
Looking at the chart of TSLA first through a multiyear lens, we see that while the stock has seen plenty of gyrations since early 2014, it has for the most part played within a fairly well-defined trading range. The range on the top end on a weekly closing basis sits around $270 – $280 and on the lower end (ignoring the outlier sell-off this past January/February) comes in around $185.
Currently, TSLA stock resides smack dab in the middle of this range, which all else being equal from this time-frame would see about a 50/50 chance of the stock moving to either the upper or lower end of the range again as the next directional move.
If we hone on closer on the daily chart, we see that since the April highs, TSLA has also traded in a ‘bull flag’ pattern type of range ever since, which I marked with the two black parallels.
The pullback into the late June lows coincided with an exact 61.80% Fibonacci retracement of the entire rally from February into April.
In recent weeks, the stock once again reached the upper end of this ‘flag pattern’ and is now also sitting right below horizontal resistance from the reaction highs in early June. As such, a daily close above the $239 – $240 area could be what the doctor ordered for a next better directional move to the upside to unfold into the $260 – $270 area.
Alternatively, a meaningful daily close below the $220 area could lead to a mean-reversion move back toward $200.
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