Shares of Tesla Inc (NASDAQ:TSLA) are higher by just about 50% for the year-to-date. And a recent breakthrough in the chart of TSLA stock has led to louder bulls and quieter, more frustrated bulls.
In my opinion, Tesla stock is bullishly postured through a multiquarter lens, in the near-term, shares look increasingly overbought. And Tesla first-quarter earnings — due out tonight after the bell — could be the catalyst that leads to a check-back or mean-reversion move lower before a better move higher can continue.
I am hard-pressed to find a stock at the moment with more opinionated investors and traders than Tesla. It doesn’t matter whether I speak to hedge funds, other institutional investors, even the Twittersphere — everyone is full of emotions as it relates to TSLA stock.
This type of bifurcation of investor sentiment could lead to more volatility as we get through tonight’s earnings report.
TSLA Stock Charts
On the multiyear weekly chart, we see that Tesla in late March broke out of a multiyear sideways pattern (blue box) after a failed breakout attempt in February.
I personally believe in Tesla’s growth story and the company’s ability to innovate, as well as this chart’s constructive move over the past month or so.
However, I have learned over the years that one of the most important aspects of profitably trading the markets is to look at stocks across multiple time frames.
As such, I like the constructive breakout in TSLA stock on the multiyear chart. However, from a near- to possibly intermediate-term time frame, I have a hard time feeling bullish about the stock. At least without first seeing some consolidation set in.
Looking at the daily chart, we see that the most recent rally has also pushed Tesla stock to the very upper end of a six-month uptrend.
Note that the MACD momentum oscillator at the bottom of the chart recently once again reached overbought readings that in the past have led to “corrective” moves lower in the stock.
The options markets indicate that TSLA shares are about to move 18 points in either direction following the earnings report. Using Tuesday’s closing price, this could mean a rally toward the $340 area or a selloff toward $300 may occur after earnings.
I would be particularly interested in playing Tesla from the short side for a trade should we see the stock gap higher toward $340. In that case, a mean-reversion move back toward $310 would serve as a first profit target.
In that scenario, I will also discuss with my Clubhouse members a trade idea using options where we would sell out-of-the-money call spreads using June or July options. That is, once we see how TSLA stock trades on Thursday.
Like what you see? Sign up for our daily Beat the Bell e-letter and get Serge’s investment advice delivered to your inbox every morning! You can also download his 6 Keys for Successful Trading and Investing.
