Tesla Inc (NASDAQ:TSLA) was a market leader in the first half of 2017, but after gaining a whopping 69% through the first six months, the stock has rolled over quickly. TSLA stock fell 5.5% on Thursday, trading more than 20% below their June 23 all-time high and officially entering bear market territory before leveling out Friday.
There’s no question TSLA was overextended in the short-term and due for a pullback, and news that the company had only sold 22,000 cars in the second quarter and 47,000 in the first half of the year did the trick. Investors, who had been expecting 50,000 cars sold through the first six months of 2017, were disappointed and exited the stock in droves.
However, there was a silver lining to the announcement. CEO Elon Musk said that Tesla is expecting to start mass production of the Model 3 any day now, and followed that up over the weekend by tweeting a couple of pictures of the new mass-market vehicle.
TSLA is forecasting production of 500,000 units in 2018 and more than a million by 2020. This lower-priced vehicle, which starts around $35,000, could be the beginning of something big for Tesla. In fact, I suspect the success or failure of the company in the coming years will be largely based on the Model 3’s sales.
From a technical perspective, TSLA stock has some support at the $300 area (the black line) that it is attempting to hold and bounce off of amid the recent pullback. If Tesla can build a base here, it could stop the bleeding for now.
However, I need to see more than a few days of sideways movement before I can consider the stock a new buying opportunity.
The heavy volume (circled) on Wednesday and Thursday indicates that there was a mass exodus from TSLA this week, and it typically takes some time before investors are comfortable moving back into the name. We saw some buying on Friday, but Tesla stock is struggling again this morning, down more than 1% at the open.
I think there needs to be some sort of bullish news story to get investors excited about owning the stock again.
Until then, I’m watching closely but not buying just yet.
Matthew McCall is the founder and president of Penn Financial Group, an investment advisory firm, as well as the editor of FUTR Stocks and the ETF Bulletin. Matt just launched two new investment advisories focused around the “next” generation investing theme. His trademark three-prong investing approach targets the mega-trends old Wall Street is missing out on. Click here for more information on the “NexGen” Experience.