Every few months, I read about how Tesla, Inc (NASDAQ:TSLA) is in danger of falling off a cliff. After the TSLA stock price tumbled more than 20% in late September and October, Tesla bears are coming out of the woodwork again. Are they right this time?
History says no, and so does the chart.
TSLA Stock Primed for a Breakout
In February, TSLA stock followed a long run-up with a pullback from $280 to $246 in less than two weeks. After running in place for all of March, TSLA broke to new all-time highs above $300 by the second week of April.
In May, TSLA hit a new high of $325, only to quickly sink back to $303.
Then in June, after the stock had rocketed as high as $383, it did a quick nosedive back to $308. By early August, TSLA had recovered most of those losses.
So the latest dropoff — from $385 in the third week of September to as low as $299 in early November — is nothing new for the TSLA stock price. It’s up 44% this year despite three pullbacks of at least 10% and another correction of nearly 7%. That kind of volatility can be nerve-racking for the more conservative investor, but the end result will be the best year for TSLA stock since 2014.
If Tesla follows the same pattern, it should climb as high as $400 in the second half of 2018. And from a technical standpoint, TSLA is setting up nicely for yet another leap forward.
It’s been a month since the stock temporarily dipped below $300. Since then, it has stayed in a fairly tight range between $300 and $317. That kind of narrowing tends to lead to a breakout one way or the other. Given its history over the last year, my money’s on a break to the high side, probably within the next week or two.
Model 3 Image Hit in the Rearview?
Of course, an encouraging chart isn’t the only thing Tesla has going for it. Sales are expected to pick up in the current quarter as production of the Model 3 — its first “affordable” electric car, with prices starting at $35,000 — finally picks up after a long delay.
The recent downturn in TSLA stock has had a lot to do with the company’s failure to meet Elon Musk’s ambitious goal of producing 5,000 Model 3s a week. Unless it continues to fall well short of its founder’s production goals, the worst of that public relations hit is probably in Tesla’s rearview mirror.
Toward that end, analysts expect Tesla to improve sales to close to 70% next year and trim its losses by more than half. Remember TSLA stock is way up this year despite the company being on track for wider losses and slower sales growth than in 2016.
Thus, there’s a lot more to like about Tesla’s immediate future than dislike. Add in the stock’s recent history of following big pullbacks with bigger run-ups, and there’s no reason to doubt it will happen again. With the stock trading right around the midpoint of its month-long range, it’s a good time to buy TSLA, before the next double-digit breakout occurs.
As of this writing, Chris Fraley did not hold a position in any of the aforementioned securities.