Tesla (NASDAQ:TSLA) stock went up over 5.5% on Wednesday after its CEO, Elon Musk, tweeted to his over 24 million Twitter (NASDAQ:TWTR) followers that there would be “some Tesla news” on Thursday, Feb 28 at 2 p.m. Pacific Time.
But until we have more clarity on the overall fundamental story of the company, including the resolution of the recent battle with the Securities Exchange Commission (SEC), I am not expecting a meaningful 2019 rally in Tesla stock, and I suggest that investors stay on the sidelines.
Here’s why.
Elon ‘Tusk’ Feuding With the SEC
When Elon Musk tweeted yesterday, his followers noticed that he had actually changed his screen name to Elon Tusk and next to the new last name, there was an elephant emoji.
Although Musk’s tweet gave no specifics regarding Tesla’s announcement, traders were happy to buy into this secretive tweet. Wednesday’s up move in Tesla stock comes after recent volatility and a decline earlier in the week after bitter words by Musk against the SEC.
The U.S. regulator has recently asked a judge to hold him in contempt for breaking a settlement deal that was reached several months ago. The agreement between Tesla and the SEC requires Musk to have all his tweets that could be material to TSLA investors be reviewed by a pre-appointed person. However, the SEC now believes that he continues to tweet at will, in violation of the deal.
Wall Street is no stranger to the Twitter rants of Musk as the public relations noise surrounding TSLA has been taking over the story of the company’s fundamentals over the past year.
Nonetheless, many analysts now highlight that Musk’s latest feud with the regulators is not a laughing matter and that it may end up causing a serious headache for the company as well as the TSLA stock price. CNBC’s Jim Cramer would, for example, like to see the Tesla Board remove Musk as CEO. In case of a leadership change, TSLA stock investors may end up throwing in the towel in frustration until the company works through its top management issues.
Tesla Stock and the Upcoming Debt Payment
On Mar. 1, Tesla has to pay out $920 million when its convertible senior notes are set to expire at an equity-conversion price of $359.87 per share.
In other words, the company would have liked to have seen the Tesla stock price above $360 so that more bondholders would have chosen to convert the bond into stock. Holders had to decide on Wednesday if they would like to receive cash or rather convert to equity; it is likely that they will prefer cash.
Although Tesla has enough cash to pay off the largest debt payment to date in its history, it is still a significant amount to be paid off and it may easily create further volatility in the TSLA stock price in the coming days.
The debt payment is only one of the important questions regarding Tesla’s fundamental story. For example, going forward, Tesla may decide to change its offerings, including vehicle types or prices, on a whim. Then the stock price may take a hit due to potential uncertainty in sales numbers and expected earnings.
Short-Term Technical Analysis
One thing best describes Tesla stock’s daily moves in the markets: roller coaster. It is soaring one day and falling off the cliff the next. Its 52-week price range has been $244.59 (April 2, 2018) — $387.46 (Aug. 7, 2018).
Over the past year, the TSLA stock price has been a battleground between two camps: investors and traders. Investors have been wondering whether the company will be able to work through various production issues and margin worries as it becomes a full-fledged car manufacturer.
Bulls point out how well TSLA stock has held up since October when all other tech heavyweights have plunged in a free fall. Bears are happy to point out that the level of short-selling in the stock is a reflection of sentiment and fundamental worries.
As a result, Tesla has stayed within a range in recent weeks. However, for those investors who pay attention to short-term technical charts, I expect this range to be broken in the near future.
Although the upcoming big move could be in either direction, if I had to choose between an up or a down move, I’d possibly say the move will be to the downside, first towards the $285 level and then the $250 level and finally the $215 level.
In case of an up move, if Tesla stock can move and stay over the $320 level, the next resistance point would be around the $350 level.
The Bottom Line on TSLA Stock
Given the volatility in the TSLA stock over the past year due not only to the unpredictable mood swings of Elon Musk but also to the question marks about Tesla’s fundamental story, I would urge long-term investors to exercise caution with Tesla shares.
There might be an elephant in the room and hence a weakness in the TSLA stock price in the near-term that potential investors should anticipate.
If you already own Tesla stock, you might want to hold your position. However, within the parameters of your portfolio allocation and risk/return profile, you may consider placing a stop loss at about 5-6% below the current price point.
As of this writing, Tezcan Gecgil did not hold a position in any of the aforementioned securities.
