Shares of Tesla Inc (NASDAQ:TSLA) dropped sharply on Thursday following the company’s latest financial results. Tesla saw a narrower-than-expected loss in the fourth quarter and revenue rose almost 90% on a year-over-year basis. However, TSLA stock holders seemed to focus on the company’s still-increasing cash burn rate that now raises “concern” for a new capital raise.
In the bigger picture, Tesla stock remains constructively positioned. And I believe shares ultimately will provide further gains for long-term investors. But for now, even bulls might have to wear their bear costumes.
When I last discussed TSLA stock on Dec. 16, I offered that the stock increasingly looked ready to move higher off the lower end of its bigger-picture trading range with a near-term upside target around the $215 area. This upside price target was reached just a few days later as the stock rallied a quick 8%.
As a quick reminder before looking at the charts (and because yesterday I received some questions around this): How much money TSLA loses each quarter at this stage does not matter nearly as much as the rate of change in its car production and sales.
That is the basic definition of a growth stock. And Tesla is a growth stock.
TSLA Stock Charts
Looking at Tesla shares through the lens of their multiyear weekly chart, we see that TSLA has spent the majority of the past couple years bouncing around in a wide trading range that for the most part spans from around $180 on the lower end to about $285 on the upper end.
Just last week, TSLA stock once again bumped into the upper end of this range, where it thus far has been promptly rejected. Note also that the most recent ascent over the past couple of months has seen the stock rally from the lower end to the upper end of this range in a straight shot.
This very fact makes a sustainable breakout above this range in the near-term most unlikely due to the stock’s near- to intermediate-term overbought readings.
Also, a sideways consolidation or possibly a mean-reversion move to the middle of the aforementioned trading range at this juncture looks likely.
On the daily chart, we see that with Thursday’s selling, TSLA stock not only broke below its steady, nearly three-month-long uptrend, but also below its 21-day simple moving average (yellow).
Note also that the up-gap on Feb. 9 (blue arrow) was negated by yesterday’s down-gap, thus also forming what we may refer to as an “island top” formation.
All of these three developments are bearish for TSLA stock as it relates to the near to possibly intermediate-term. The path of least resistance now looks to point toward the $240 area as a next downside target.
Traders and active investors could look to initiate short trading positions either through Tesla stock or its options.
As always, any strong daily bullish reversal would be a stop-loss signal.
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