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:
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.