Shares of electronic vehicle manufacturer Tesla Motors Inc (TSLA) fell sharply Monday to start December on the back of news that German luxury car maker Bayerische Motoren W (BAMXY) is not interested in taking a stake in the California-based company. From a technical perspective, Tesla stock is continuing to bump into a crucial confluence area of support that, if broken, could bring about a load of sellers in TSLA.
Back on Nov. 5, Tesla reported third-quarter earnings of 2 cents per share, which topped a consensus estimate for a penny loss. Revenues of $932 million beat the Street, however, which was calling for $889.28 million. On a year-over-year basis, those earnings were 83% lower, though the top line was 55% higher, reflecting increased research and development costs.
In recent week, an increasing amount of speculation pointed to the possibility of BMW taking a stake in TSLA. This, along with the continued rally in the broader market, likely kept Tesla stock afloat and unsurprisingly led to a drop after the deal apparently fell off the table.
On Oct. 28, I mused that Tesla stock has reached a thinning line of support, and while nimble traders could have tried the short side for a quickie, tactically it likely paid to wait for the earnings report to clear before making a trade. Fast forward to today, approximately one month later, and after what looks to have been an artificial bump in the stock, it is right back at the critical support line in question.
Tesla Stock Charts
Looking at Tesla’s stock charts from a weekly perspective that stretches back to 2013, we note that while price exploded higher, the entire move has come on dwindling upside momentum where the Relative Strength Index (RSI) at the bottom of the chart continues to create a series of lower highs. Also note that while the 2013 uptrend line in the bigger picture continues to hold support for the stock, both price and waning momentum are increasingly weighting on this line and thus risking a breakdown.
On the daily chart, we see that the 2013 support line also coincides with the stock’s 200-day simple moving average (red line), which after Monday’s drop the stock has once again revisited. Furthermore, note that after peaking in September, Tesla stock put in two lower highs: one in October and one in November, which after Monday’s selloff also adds weight on top of the 200-day moving average.
Much like I wrote on Oct. 28, more nimble traders could consider shorting Tesla stock here, while more tactical traders and investors might want to wait for a confirmed break below aforementioned support around the $230 area on a daily closing basis.
If and when support gets taken out, a better mean-reversion move into the $200 area could unfold.
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Download Serge’s trading plan in the Essence of Swing Trading e-book here. As of this writing, he did not hold a position in any of the aforementioned securities.
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