Chart of the Day – $TSLA

by Enis July 24, 2013 11:31 am • Commentary

TSLA has been one of THE stories of 2013.  It’s actually a name we highlighted far before the mania started (this trade in Feb, and this trade in Apr), though we obviously wish we captured a much bigger portion of that amazing move.  We are quite bullish on the long-term prospects for TSLA, but what about the short-term picture given this year’s incredible run?

The technicals paint an interesting picture at this juncture.  Here is the chart since January:

Daily chart of TSLA, 50 day ma in pink, volume on lower panel, Courtesy of Bloomberg
Daily chart of TSLA, 50 day ma in pink, volume on lower panel, Courtesy of Bloomberg

It’s a bit crowded, but I want to make an important point about the repeated breakouts in TSLA ever since it broke its long-term resistance around $40 (which was the reasoning behind both of our trades in TSLA back in the spring).  I’ve circled in green on the lower volume panel each “kick-off” move in the stock since it began its stellar run.  I’ve included with a green line the prior high of TSLA stock before the breakout move indicated by the kick-off volume.

The first 2 breakouts, in March (TSLA’s announcement that it would be profitable) and early May (earnings), never revisited the prior high (though TSLA almost touched $40 in April).  The breakout in late May above $100 was not as strong, as it did sell off back below the prior high (around $97) for a few days, though it eventually made a new high on July 1st.  After that last breakout above $115, TSLA had a nasty reversal day last week.

Two things of note on the price action in the last month that might indicate a change of character:

1)  The volume on the July 1st breakout was the weakest of the kick-off moves.

2)  The volume on the July 16th reversal bar was the largest since May 14th.  May 14th was only a minor reversal day, and it was quickly bought, but May 14th’s reversal came after 3 huge accumulation days.  In addition, its reversal didn’t even breach the prior day’s low, so it did little technical damage.  In contrast, the July 16th reversal bar dwarfed the prior 6 weeks of action in volume terms, and it also made a new low for the stock for the month of July, taking out 2 weeks of positive price action in one day.

In this context, the July 16th reversal bar has done major technical damage to the stair-stepping uptrend in TSLA over the past 6 months.  TSLA reports earnings on August 7th after the close.  The price action leading up to that event will give a better sense of whether sellers have indeed become more aggressive than buyers for the first time all year.