Tesla (NASDAQ:TSLA) stock is in free fall, down 40% this year and down again this a.m. Today we look for an opportunity, if possible. The headlines have not been kind to TSLA stock in months. Aside from their usual debate points, last year CEO Elon Musk opened a Pandora’s box with tweets that caused a deluge of negative consequences.
Mainly, Musk claimed that he would take the company private at $420 per share and that he had secured the funding for it. It all turned out to be false. He was lucky to avoid serious legal consequences from the incidents, but he is still not slowing down with his controversial statements.
As a result, his statements’ accuracy became a focal point for critics and regulators. Wall Street now hangs on his deadlines and if missed become stock selling points. Yet he still has not reined in his tweets and the stock slide has not stopped since. TSLA is now almost 50% below that one fateful “funding secured” tweet. And now the selling intensified in a red overall equity market.
The bears are at the $200 mark, but therein lies an opportunity, so bet long on Tesla stock. I put emphasis on the word “bet,” because this stock story is far from a sure success. It has no clear floor below it.
The Potential in TSLA Stock
Before this mess started, the bullish thesis for Tesla had multiple facets. Critics couldn’t squash the fans with typical arguments. While skeptics labeled it an extremely rich car stock, Wall Street fans called it a technology or even an energy company. It’s easy to argue that TSLA is too expensive relative to General Motors (NYSE:GM) and Ford (NYSE:F). But it’s harder to do it and also deny the potential from the technology and energy sides.
Tesla seemed invincible to critics for a while, but that all changed last year. Its popularity peaked around the introduction of the Model 3. They sold 400,000 of them almost instantaneously, but then the operational nightmare to actually deliver them started. Perhaps this was caused by Elon himself, as the focus remained on the company’s weak operational points.
The opinions on Tesla are still bifurcated, as we still have the fans with a price target of $4,000 and those who call it a dead company. But the fans are not as vocal these days, and the naysayers have grown bolder. It’s tough to defend the company’s actions and results of late.
Most concerning are constant talks of liquidity issues, and on Friday we learned that Musk issued a memo to his staff to seriously tighten spending and to oversee every expense. These are alarming requests that could indicate the beginning of the end.
Now the fundamental story is shaky at best, and it’s hard to buy a stock that is facing such trepidation. So I consider today’s write up a very speculative bet on the potential of a bottom for Tesla stock.
I call it speculative so as not to give the impression that this is a conviction buy. It’s not, Tesla now is still in the Delorean stage. It’s a cool car with questionable leadership, so it can come to an end.
But there are so many entities that are pot-invested — to borrow a poker term — in TSLA that I bet they won’t let it die.
From a trading perspective, there are those who were looking for the $180 zone to catch this falling machete, and for good reason. Technically, this has been pivotal area for nine years. Those usually are support zones on the way down, as bulls and bears will want to fight it out hard. This creates congestion, which slows down the descent.
It is important to note that this is not a hard line in the sand but a zone to watch.
But since the Tesla fundamentals are this shaky and the stock market in general is still struggling with geopolitical headlines, the size of your investment matters. I only risk a small amount to start and I would set a stop loss. Discipline is important here, because this is one trade that I would not want to turn into an investment. I don’t average down.
To summarize, Tesla stock is in free fall and for good reason. But there are technical reasons to try and catch it near $180 per share with limited funds and a tight leash. Because the fundamentals now are potentially disastrous.
Nicolas Chahine is the managing director of SellSpreads.com. As of this writing, he did not hold a position in any of the aforementioned securities. You can follow him as @racernic on Twitter and Stocktwits.