Okay, you know the drill here. A good ol’ fashioned Head and Shoulders in a high-flying cult name, Tesla (TSLA) or as I like to call it a “triangle of death”:
And some of you more astute chartists may see the little TOD (Aug – Oct) inside the larger TOD which can NOT be good. But here is the thing, the stock is down 20% from the mid Nov highs, and getting a tad oversold. So for those of you have been waiting for the “big one” in TSLA, it may be a hard press here, despite the appearance of an impending collapse. Using this technical indicator as a trade input I usually like to wait for a counter-trend rally, back to the downtrend line of the right side of the TOD. Additionally, the stock’s moving averages, signs of momentum seem to be turning lower, with what appears to be an impending “death cross” where the 50 day crosses below the 200, which could (not always) mean lower prices ahead.
For those a bit more daring than me, who think that it could be lights out into year end as investors take profits in high-fliers then you may want to look to the options market to make a directional bet, as options prices, despite the stock’s recent weakness seem fairly reasonable. The apparent cheapness has to do a bit with the fact that there are no scheduled events until the company’s expected Q4 results in mid February, and we are about to head into what should be a quiet holiday trading period. 30 day at the money IV in TSLA is about 40%, which is high by most stocks standards suggesting almost 3% intra-day moves, which for the most part it has been realizing:
On a longer term basis, the Sept 2013 high of about $195 (red below) could be an important spot to watch as the stock has recently broken the uptrend (green below) that has been in place since early 2013:
I think it is safe to say that this $195/$200 support, whether it merely be psychological is fairly important, as there is NO technical support below that until about $150.
So what’s in store for TSLA in 2015? I think it is safe to say that the discussion about valuation and how the stock can grow into it has shifted a bit from production of cars to the potential for other broader uses of their battery technology. Many smart investors think that is the future of the company. Not solely relying on high end electric cars (read my thoughts here on the topic MorningWord 11/24/14: $TSLA – Stock Alt and Battery). One thing that is a near certainty is that to fund their electric power aspirations for merely their own cars or that of other automakers or for other uses, the company’s planned gigafactory and continued R&D is gonna cost mad loot. Expect continued capital raises and diluting of existing shareholders. Since the company’s 2010 IPO they have done large cap raises every year, per Bloomberg:
This year was no different, back in February the company priced $2 billion worth of convertible bonds (read here). Expect, more in the New Year.
So what to do with the stock here?
The stock is down almost 30% from the September highs, but still up 38% on the year. To buy the stock here or continue to own it you have to be less concerned with valuation and potential competition and more a believer in Elon Musk’s dream. And I get that, and I am a long term believer in the man and his dreams. And I’m in that camp for a small portion of what I would deem speculative investing. I would be inclined to buy some shares if the stock were to make a meaningful break of the support I mentioned above.
As a trader I want to play for a bounce from a VERY oversold spot, but we aren’t there yet.