The news is out, the Electric Vehicle (EV) for the masses is here: a $35K Tesla Model 3. However, Wall Street didn’t like the news too much and is selling the companies’ shares today. So what gives? Time for the semi-annual update as on March 29 last year I first showed that Tesla and its stock could be in serious trouble, see here, with a follow up in September finding that there was still no resolution to the Bullish or Bearish case (see here), albeit I was still leaning Bearish long-term. In all this time, 1 year, the company’s share price has risen ~10% (from $267 to currently $292). So much for buy-n-hold; and so far the Bulls have not proven there case yet. But now price is getting close to make or break levels: so lets review the charts once again, objectively and factually to see if we can learn what could be in store.
The Bearish case remains that Tesla’s share prices have topped in a large three wave fashion (Cycle-A) and is now working on a larger decline (blue A) to about $150 for a classic C=1.618X A relationship. But, for this to happen, price will have to break below the green uptrend line, which has held all downside in check since early 2016. The 4th time will most likely not be the charm.
The Bullish case -as already presented last year- can still be a larger leading diagonal Cycle-1 wave. Price will have to stay above (trend-line) support to accomplish this option. The ideal target for this pattern is around $460. Unfortunately, all the technical indicators (weekly scale) are on sell, and there are no buy signals. This means we should expect lower prices, not higher prices. Cont’d below.
As shown in the September update, a simple daily price chart with only the 200-day Simple Moving Average shows price has been rejected over the last few weeks at this important SMA. We can also see price has been stuck in a 130p range for over two years now; oscillating around this 200d SMA. In my book I lean Bearish when price is below its 200d SMA and Bullish when above it. Thus, with today’s price action I have to lean Bearish; until proven otherwise. Note that a breakdown of this range targets $120 based on simple symmetry; while a breakout targets $500. Both of these price targets fit with those calculated for the Bearish and Bullish case.
Thus for now, the Bulls will have to proof their case, especially since they are running out of real estate. Maybe another stick safe will bring light at the end of the tunnel? In another six months from now it will be time to revisit this stock again. FYI: I have no position in TESLA.
Founder and President Intelligent Investing, LLC
Vice President NorthPost Partners, LP