Tesla Motors Inc (TSLA) — In the Oct. 2 Trade of the Day, I recommended readers sell TSLA stock short at $240 with a downside target of $200 by mid-November. While the trade took a bit longer than anticipated to work out, those who took my advice were able to book a 17% profit by mid-January. And it now looks like we have a shot to book another double-digit profit by shorting TSLA stock.
When I last covered the electric vehicle maker, I commented that despite rave reviews and impressive sales growth, the company had yet to make a buck. And despite a 47% jump in revenues in 2015, Tesla reported a loss of $2.30 per share.
While analysts expect the company to turn a profit this year, S&P Capital IQ Equity Research considers TSLA stock to be high risk. Its analysts rate shares a “Hold” and recently lowered their price target by $60 to $155.
Between late March and July of 2015, TSLA stock rose from under $200 to over $280 before pulling back. By early August, shares had fallen below their 50-day moving average. Then, on Aug. 24, TSLA stock plummeted more than 15% to a low under $200, smashing through its 200-day moving average.
After an attempted consolidation in late 2015, shares failed, breaking below their 50-day moving average again early this year. They hit a low just above $141 on Feb. 9, and quickly bounced to the 50-day moving average at $195, where they appear to have again failed.
TSLA stock is a short sale candidate at $190 with a target of $150 for a potential 21% gain. Enter a stop-loss order at $200 to protect against the possibility of theoretically unlimited losses.
As always, ask your broker if there are any special restrictions on shorting TSLA stock, and be aware that you will be responsible for covering any special dividends (stock or cash) while you hold shares short.
