Exactly six months ago (see here) I analyzed the weekly price chart of the electric car company TESLA and found that its stock-price and possible therefore also the company was most likely in serious trouble. Remember that the markets are always forward looking, and when we listen carefully to the charts, by objectively analyzing them using powerful tools such as the Elliot Wave technique, as well as classic technical analysis, we can get a glimpse of what the future may bring.
Law and behold, on August 7, the company’s CEO Elon Musk sent out the infamous Tweet “Am considering taking Tesla private at $420. Funding secured.” followed by “Shareholders could either to sell at 420 or hold shares & go private” (see here). Little did we know how disastrous that tweet would become as the Securities Exchange Commission (SEC) has now charged Mr. Musk with Securities fraud, see here, in which we can learn “… Musk stated that he rounded the price up to $420 because he had recently learned about the number’s significance in marijuana culture and thought his girlfriend “would find it funny, which admittedly is not a great reason to pick a price.” No comment here…
Long story short, TESLA’s share price is currently trading at $267, which is right where it was when I wrote the first article late March (see here) when it closed at $266. Zero progress in six months… And thus time for an update. With six more months of price data at hand, we can re-assess the charts and continue to remain bearish. Of course the charts can predict exactly how price will move or who will tweet what and when, so with the spike-high reaction to the tweet I propose to move the C-wave high from last-year’s high to the August 7 spike, finishing wave-5 of C. Now price is in wave-a of A, targeting ideally around $240ish, which is the (classic) 38.2% retrace of the whole advance of wave-C . From there we should -ideally see a (messy) bounce to broken support (300-330, before the next leg down starts (wave-c). Often wave-c equals the length of the prior a-wave, which in this case would target around $160, which is the 61.80% retrace of all of the entire advance TESLA price has made since it’s IPO. I would label that low as wave-A.
What happens then remains to be seen, as looking that far ahead into the future is fraud with errors, similarly to the fact that yes I did foresee for TESLA’s stock to under perform, but one could not have foreseen the spike to $390 on August 2, etc. That’s because nobody can predict the future, all we can do is make expert-judgement forecasts based on proven price patterns that tell us to expect a certain outcome at some point. How we then get from A to B exactly remains unknown.
What we do know is that all the technical indicators (TIs) on the weekly charts are pointing down (red arrows), wanting to see lower prices. Money has been flowing out of this stock since July last year (MFI14 is trending down). This is never a good sign, and something one always has to look for when buying a stock. Thus the TIs support the proposed wave Elliot Wave count in that we should look lower first, not higher.
Lastly I wanted to show the daily chart with the 200-day Simple Moving Average. It shows how price knifed below it November last year and has since been under this important Bull/Bear line-in-the sand for 7.5 months out of 10… a weak stock. Don’t long anything that’s below its 200d SMA, because bad things tend to happen then… Today is case-in-point.
In another six months from now it will be time to revisit this stock again. Trade safe!
Founder and President Intelligent Investing, LLC
Vice President NorthPost Partners, LP