It’s never fun being a bearer of bad news about Tesla Motors Inc (TSLA). Tesla stock is widely owned and wildly loved, and as such has more than its fair share of supporters who will “colorfully” defend TSLA against any premise that could work against the Tesla stock price.
But reality is reality, and the current reality is that Tesla shares are losing their bigger-picture momentum.
That premise in itself will certainly have some fans and followers of TSLA stock sharpening their pitchforks and preparing the tar and feathers. After all, a stock’s history can’t predict its future, and besides, you invest in companies — not stocks.
I get all the anti-technical arguments. I really do. I even agree with many of them, as I’ve walked in both the fundamental analysis camp as well as the technical analysis camp in my professional life.
It’s that multi-faceted view, in fact, that will allow me to make a unique point about the foreseeable future of Tesla stock, and technical analysis in general.
The Truth About Technical Analysis
Although I want the bulk of the focus here to be on the Tesla stock price chart, it’s important to preface a couple of key things about technical analysis as strategy before we can have that particular discussion.
Specifically, three points need to be made about charts:
- It’s an odds-making tool, and not a crystal ball. Of course it’s not always right. Here’s an ugly truth that many of the naysayers don’t want to hear: Historical fundamentals don’t always successfully predict a stock’s future, either. Fundamental analysis is just an odds-making tool, too.
- The people who say “technical analysis doesn’t work” are often actually saying “I tried technical analysis ones and it didn’t work for me, therefore nobody else should be able to make it work either.” It takes a long time to learn the nuanced art of technical analysis. Trust me.
- Most important, a chart’s history isn’t just a history of a stock’s price. A chart is a log of investors’ ever-changing opinion of a company’s fundamentals, and as it turns out, opinion patterns — based on human emotions like fear and greed — are actually pretty predictable.
Of those three premises, I think the third one is the most important, and it’s especially important today with our technical discussion of TSLA … the company and the stock.
Running TSLA Through the Trading Wringer
The chart of Tesla stock roughly aligns with the company’s success. That is, even though the Model S debuted in 2012, it didn’t start selling in earnest until 2013, coinciding with the sharp rise from TSLA shares that year. Output ramped up to about 35,000 vehicles in 2014, and the stock advanced accordingly. But with 2015’s output leveling off at what will be something around 50,000-55,000 electric vehicles, the stock’s advance has slowed accordingly.
This is where things get interesting, and perhaps a little concerning for shareholders.
In 2013 and 2014, Tesla stock traded at a strong premium based on its perceived future growth, despite the fact that it was still anybody’s guess at the time whether or not a high-end electric vehicle would me widely marketable. Now, we’ve got far more confidence that EVs are plenty marketable, and we’ve no reason to doubt (allegedly) that Elon Musk will have Tesla Motors building 500,000 electric Model 3 vehicles by 2020 … and yet the stock isn’t trading at anywhere near the premium price it was just two years ago.
In fact, TSLA is currently valued at the same price it was in early 2014, even though it has grown revenue considerably since then.
It doesn’t matter which camp you’re in — that’s undeniable proof that at least something has dramatically changed with the way the market views Tesla.
The counter-argument to that idea isn’t a bad one: Tesla was still effectively a startup in 2013 headed into early 2014, and euphoric traders just wanted to make sure they got in sooner than later; the newness has worn off. It’s been nearly two years, though, and the stock hasn’t budged even though the news has never been better. Indeed, the bullish effort that unfurled in early 2015 didn’t even rival the peak for the stock seen in August 2014.
That’s the market’s way of saying it doesn’t actually have much faith in Tesla’s long-term viability.
And make no mistake: That is a majority opinion. There are more sellers than buyers of Tesla stock … and not just today in the wake of a massive recall stemming from possibly faulty seat belts.
Click to Enlarge The Chaikin oscillator, which is in simplest terms a volume-weighted momentum indicator, has turned negative again as of this month after falling for several months, confirming there are more long-term sellers than buyers. If it doesn’t seem like this should be the case given the headlines and rhetoric, that’s largely because the Tesla bulls are really, really good at making noise.
It’s also worth noting how even during the second quarter of 2015 when Tesla stock and the Chaikin line were rising together, the rollover could have been expected. The upward slope of the Chaikin line was minimal, and the bullish volume was waning all the way up to the peak.
In any case, current owners should be worried that Tesla stock is knocking on the door of the lower edge of a converting wedge pattern (red). If TSLA happens to break under a key line in the sand at $180, that could kick-start a firestorm of selling by traders who’ve established that line as a technical and psychological floor.
Bottom Line for Tesla Stock
Don’t misunderstand. This isn’t to say that Tesla Motors is doomed as a company. It isn’t doomed. It is to point out, though, that the market is collectively saying TSLA stock as a trade is losing its luster.
We would all be wise to listen to what the market as a whole is telling us about Tesla stock, since investors — in this bigger-picture context, anyway — are correct far more often than not.
Could things change in the future? Sure. Anything’s possible. Investors are better served by responding to what is happening rather than predicting what may or may not happen at some unknown point in the future.
If the market’s sentiment on Tesla stock changes for the better, that’ll show up on the chart in plenty of time too.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities.
