There’s no denying the ballyhooed Tesla Motors Inc (TSLA) Model 3 at the end of March was huge for Tesla stock. Hinting at a pullback from the February and March rally, TSLA shares soared leading into and out of the pre-order event that secured down payments from 325,000 drivers.
At an estimated average cost of $42,000 each, Tesla just set itself up for at least $13 billion in revenue once it starts to deliver the Model 3 sometime late next year.
The upside of that good news faded fast, though, with TSLA peeling back 5% from the pre-order surge … a surge that didn’t push the Tesla stock above a critical technical line.
It’s a not-so-subtle reminder that more than anything else — for the time being anyway — TSLA stock remains a trading instrument rather than an investment.
It’s best to treat it as such.
Same Ol’ Tesla Stock
Even merely hinting at the possibility TSLA could move lower is sure to raise ire from the faithful fans of electric vehicles in general, and of Tesla Motors in particular. And, I get it. I really do.
It’s inarguably the pace-setting leader in a revolutionary technology.
It’s naive, however, to think that Tesla stock has already shrugged off the erratic euphoria inherent in game-changing technologies. It is a trading instrument rather than an investment, with most players still using it as a psychological chess piece rather than as a long-term holding rooted in earnings potential. The hot and cold nature of the chart since 2013 handily verifies this idea.
And it’s this reality that suggests TSLA shares are poised for a pullback … possibly a big one.
The following daily chart of Tesla stock tells the tale. Although not with a high degree of perfection, Tesla shares only had to approach a horizontal resistance line around $271 and falling resistance line (dashed) currently at $274 for the profit-taking to materialize.
The downside target is well below the floor around $186, which ended up not being a support level in January. Indeed, it’s distinctly possible TSLA stock won’t find support at the February low near $141, now that we’ve started a pattern of lower lows and lower highs.
One thing is for sure, however. Wherever the next major low point is, Tesla’s not going to move there in a straight line. That’s something else we’ve learned from looking back at the chart’s history … there are short-term ebbs and flows within the longer-term moves.
As for exactly where Tesla is most likely to find a low point and start a new bullish swing, there are several technical levels that make sense as rallying points for the bulls. None of them make quite as much sense, though, as the 61.8% retracement line at $127.
That would allow for the lower low we need to make to complete the lower-low and lower-high pattern, and it’s just a meaningful psychological checkpoint for the action (but lack of net progress) Tesla stock has made for the past couple of years.
Just bear in mind there are several support levels between here and there that have the potential to stop the bleeding.
On the off chance TSLA stock bucks the bigger trend and manages to break out of this bearish rut, a move above the technical ceiling around $271 would make it a compelling buy.
In the same sense, a break above the 2014 peak at $292 would be an outstanding clue that Tesla shares have finally broken out of a technical and psychological funk and are moving on to a different paradigm … a valuation that reflected more “investment” than “trade.”
Bottom Line for Tesla Stock
Again, such a suggestion is apt to enrage a small but rabid number of TSLA shareholders who’ve been pushed around — to no avail — for a couple of years now. If that’s you and you’re truly a long-term investor, this pullback is nothing to sweat.
As was noted, Tesla sets the pace in a game-changing industry, and pre-orders of 325,000 of the company’s first mass-market vehicle speaks volumes about the opportunity TSLA has in front of it. Give it time — it’ll pay off. It’s just not likely to pay off in 2016 or early 2017, as the company ramps up spending to increase its production capacity.
Indeed, it’s the lack of bullish catalysts on the radar for the next several months — coupled with a lackluster Q1 and a recall of some Model X SUVs — that will likely drive news-sensitive Tesla stock lower from here.
It’s just all part of the usual dance.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities.
