Since shares of Tesla Inc (NASDAQ:TSLA) topped in September of 2017, they have slipped about 25% and unable to get out of their own way. While I sympathize with the longer-term bull case for TSLA stock, I also see an increasing amount of warning signs from both a structural/fundamental as well as a technical perspective.
In many weekly conversations with the smart money crowd of hedge funds, family offices and clued in private investors, the bearish talk and positioning in TSLA stock has markedly increased in recent months. While these guys are wrong plenty of times, when I see near consensus from them they are often on to something.
I do believe in the future of an electric car, and Tesla has certainly gained the lion’s share at least in terms of headlines in recent years.
Three things however must also in my mind be respected at least in as far as seeing both sides is concerned: 1. Tesla’s cash burn is large. 2. The company is not an efficient manufacturer — or at least not yet. 3. The competition is catching up quickly, and they have significant experience in car manufacturing and bring large marketing budgets.
Tesla Stock Charts
Moving averages legend: red – 200 week, blue – 100 week, yellow – 50 week
With the above thoughts in mind, let’s have a look at what the charts look like. The multiyear weekly chart shows that TSLA stock had a notable and important breakout in the spring of 2017 past the blue box I marked on the chart. Often times such breakouts see a re-testing move lower of the breakout point, which Tesla also did by July of 2017. However, instead of ultimately breaking to higher highs TSLA stock has since been stuck in a range that so far has a double top.
On the lower end of the range around the $290-$300 area, the stock has now had three bounces, the last two of which made lower highs on the charts. In my eye, the odds are increasing that a next downside target for this stock is closer to its red 200-week simple moving average, currently around the $255 area.
Moving averages legend: red – 200 day, blue – 100 day, yellow – 50 day
On the daily chart, we see the double top and lower highs since September more clearly. The selling pressure is visibly increasing and a crack of the $290 area could lead to a move into the $250-$255 range.
Tesla is set to report its next batch of earnings on earnings May 2, i.e. more than one month from now.
Although I personally would not want to outright short TSLA stock, option traders could look to either sell out-of-the-money call spreads using options expiring in June, or nibble on some simple long put spreads such as a June $300-$250 put spread. Keep in mind that this is a volatile stock, which is to say that position sizing on any trades is best kept conservative.
Check out Anthony Mirhaydari’s Daily Market Outlook for March 27.
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