Tesla Motors Inc (NASDAQ:TSLA) took yet another hit on Tuesday on the back of a couple of negative drivers. For one, analysts raised concerns about the number of Model S cars the company may have sold in the month of October. Investors also were jittery about upcoming details on the SolarCity Corp (NASDAQ:SCTY) merger, which came out last night. As a result of the weakness in TSLA stock, things became dicier on the technical front.
Now, a critical area of support is being tested yet again, so traders should wake up and take notice. Sells are lower. Buyers are higher.
One major point of focus for both investors and analysts of TSLA stock is the announced acquisition of SolarCity. After the close of trading on Tuesday, Tesla Motors announced that this acquisition would add about $500 million to the company’s balance sheet and add about $1 billion in sales in 2017.
Just one reminder. Rear-view news like a past quarter’s earnings and sales are important. But for growth equities like Tesla stock, it’s the projections for future quarters and years that matter most. As such, Tuesday’s news about a possible slump in Model S sales last month, in my opinion, might not be enough to actually break the back of TSLA stock.
TSLA Stock Charts
First, let’s look at the multiyear weekly chart of Tesla stock.
Despite Tuesday’s 3.5% drop, TSLA continues to hold on to a critical confluence area of technical support. The blue horizontal area has, for the most part (except for the January/February 2016 swoon), held as support around the mid- to high $180s since the first quarter of 2014. This area is now also matching up with the red 200-week simple moving average, which acted as support at the February lows.
Through this longer-term lens, Tuesday’s price action has yet to cause any significant damage, although it is also worth noting that the series of lower highs in the stock since the 2014 top is increasingly weighing on support.
On the daily chart, we see that this support area in the mid- to high $180s also lines up with a 61.80% Fibonacci retracement (green horizontal) of the entire rally from the February lows up to the April highs. The 61.80% retracement is an important figure in Fibonacci analysis, and one that stocks often respect as support or resistance.
Lastly, note that TSLA stock on Oct. 27 initially rallied following the previous day’s earnings results, but this rally quickly faded. In fact, Tesla’s pop and drop took place right at the red 200-day SMA.
Overhead resistance is around the $213 level, and much is riding on the bigger-picture technical support area in the mid- to high $180s. The bulls need a strong bullish reversal to get the wind at their backs once again.
While more aggressive traders could look to play TSLA stock on the short side in small size for a potential trade down into the low to mid-$170s, more risk-averse players would first need to see a break below $187 to confirm a break of support.
The same applies on the buy side. Instead of anticipating that support will hold, the better risk-reward trade is to wait for any potential bullish reversal in price to take hold.
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