Heed the Red Flag Tesla Stock Is Waving

In retrospect, a trader looking at the situation with an unbiased eye can’t be entirely surprised Tesla Motors Inc (TSLA) shares are tanking now.

tesla stock motors tsla stockAlthough Tesla undoubtedly builds one of the coolest things we’ve seen this invented this century, “cool” and the ensuing hype can only carry Tesla stock higher for so long before the rally runs out of gas. That’s just the nature of a story stock like TSLA.

The question is, at what price might Tesla’s stock chart finally stop bleeding?

Answer: It has less to do with a rebound in oil prices than one might think.

Tesla Stock Chart Tells the Tale

All stocks ebb and flow over time, so in that regard the up and down we’ve seen from Tesla stock since 2013 isn’t particularly remarkable. On the flip side, not every stock chart often waves the same red flag that the Tesla stock chart started to wave as of last week, and is waving more fervently now.

As can plainly be seen on the TSLA chart, this stock has made a bearish head-and-shoulders pattern since July, and underscored the warning with a move below the key 200-day moving average line (green) as of Friday.

Some will argue that you can’t predict a stock’s future based on its past, and in many ways that’s true.

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Tesla stock is no ordinary stock, though.

It’s one of those stocks most everyone knows, and most everyone has an opinion on. The price history of TSLA is actually a reflection of changes in the public’s opinion of Tesla, and public opinion can be remarkably predictable.

In other words, take the bearish head-and-shoulders hint at face value; the trading mob is changing its mind about Tesla stock, and mobs are tough to slow down.

The obvious follow-up questions are why, and why now?

Reality Check

The demise of crude oil prices — and by extension the tumble of gasoline prices — has received a great deal of the credit/blame for the TSLA stumble, and to be fair that’s likely played at least a small role in the stock’s pullback. As Northland Capital’s Colin Rusch explained on CNBC’s Fast Money last week, however, value and cost concerns aren’t actually concerns for anyone willing to spend $50,000 on a vehicle; cheap oil only means all-electric Tesla owners save about $1,000 per year. Instead, Rusch believes, owning a Tesla is about the brand experience.

More realistically, the Tesla stock chart has most likely deteriorated since peaking at $291.42 in September because the high-end EV market is now fully saturated.

That’s what Cars.com’s chief analyst Jesse Toprak sees, anyway. In an interview he gave last week, Toprak said:

“Vehicles like the Model S from Tesla have been largely immune to this because people who bought Teslas at that price level are not necessarily buying it to save money.”

Rather, they’re” lifestyle statements” — an idea largely in line with Rusch’s comments.

Translation: Cheap oil isn’t the issue.

So if not cheap oil, then what’s behind the Tesla stock spinout? More realistically, it’s a growing recognition that the electric vehicle market is still limited — largely by a lack of charging infrastructure — and where it’s not limited by a lack of infrastructure, it’s limited by demand for EVs at the high-end price range.

As evidence of this idea, one only has to look at sales of electric vehicles in the United States this year.

It’s a fact that’s gone largely overlooked thanks to the sheer sexiness of Tesla’s electric vehicles, but both General Motors Company’s (GM) Chevrolet Volt as well as the Nissan’s (NSANY) Leaf have outsold Tesla vehicles in the United States so far this year. Leaf sales in the U.S. alone, in fact, have almost doubled total global sales of 13,800 Tesla Model S units this year.

Point being, people are buying electric vehicles. Most of them are not choosing Teslas, though.

Bottom Line

Fans and followers of Tesla stock will be quick to point out that TSLA isn’t just an electric vehicle stock. It’s also a play on the entire electric vehicle movement in addition to a play on energy storage.

To be fair, these supporters make a good point. Their argument doesn’t change the fact, however, that Tesla is going to hit the same headwind in the battery and energy-storage market that it’s now facing in the EV market. If there’s a buck to be made in a new industry, the free market isn’t going to let Tesla monopolize the market forever without being price competitive.

Stronger Leaf and Volt sales underscore this idea, as is the entry of Volkswagen AG (ADR) (VLKAY) into the battery market. Investors as a whole vaguely seem to be figuring this out; now that the shine and luster of the premise is wearing off, some of the dents and scratches are concerning.

Just for the sake of clarity, this isn’t a judgment call on the company, nor is it meant to be a grim outlook for its future. This is a judgment call on Tesla stock, which perhaps raced a little too high for the wrong reason.

The technical pullback to date from TSLA is the beginning of a much-needed rightsizing of its price. The shape of the Tesla stock chart, however, now says there’s more rightsizing to be done in the foreseeable future.

As of this writing, James Brumley did not hold a position in any of the aforementioned securities.

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Article printed from InvestorPlace Media, https://investorplace.com/2014/12/heed-red-flag-tesla-stock-waving/.

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