Last week’s earnings release really took the wind out of Tesla Inc’s (NASDAQ:TSLA) sails. Its inability to meet the Street’s lofty expectations was punished with a haircut. It wasn’t a scalping, mind you, but it was large enough to merit a re-assessment of TSLA’s price chart.
Today we’ll do just that, but allow me to spoil the conclusion — Tesla’s technical foundation is crumbling.
A Well-Placed Banana Peel for Tesla
September seems to have turned the tide for Tesla shares. Up until then, it was following its fellow technology brethren into the stratosphere. But since failing at its previous peak in the middle of that month, it has been plagued by weakness, falling well below the 50-day and 20-day moving averages even before the earnings oopsie. Heading into the quarterly ritual, TSLA was testing the lower end of its six-month trading range and the pivotal 200-day moving average.
And that placed it one banana peel away from a severe breakdown.
Unfortunately, the earnings miss provided all the fruit needed to send the stock slip sliding away. The substantial volume accompanying last week’s fallout shows just how many bulls were abandoning ship due to the support breach. With Tesla now beneath the 200-day and a large double top pattern all but completed, it’s challenging to build a bullish case for the stock, at least if you’re using technical analysis.
Patience is warranted for the bottom fishers out there. I suggest waiting for signs of a bottom to form before sallying forth with your speculative dough. Besides, there are a hundred other uptrending stocks that remain on solid footing arguably more worthy of buying.
How to Bet with TSLA Stock Bears
For those looking to profit from Elon’s pain, I suggest selling bear call spreads. That way, you score even if the stock meanders sideways or rises a bit from here. Sell the Dec $330/$340 bear call spread for $1.76. If Tesla remains below $330 for the next month, you will capture the max reward of $1.76. The max risk (and cost) is $8.24 and will be lost if the stock sits above $340 at expiration.
To minimize the damage if Tesla somehow resurrects itself, exit on a break above $330.
As of this writing, Tyler Craig didn’t hold positions in any of the aforementioned securities. Want more education on how to trade? Check out Tyler’s trading blog, Tales of a Technician.
