- The Investment Thesis for Tesla is founded on three pillars and recent developments are validating the Thesis.
- Management credibility remains the primary overhang of the stock and the trade thesis for ‘short sellers’, so its important to remember that TESLA is a speculative stock
- The April 4 SEC court hearing will be either a positive or negative catalyst for shares.
Money Flow Index (80 is Overbought, 20 is Oversold): 47 is Neutral. What is interesting is that while the stock price has been in a downtrend since breaking the $300 Technical Support
Level March 1, the Money Flow Index has been in an uptrend.
MACD Momentum – the Black Line crossing above the Red Line is a BUY signal. This is currently not a strong signal but if combined with a break above the downtrend line (next pattern below) this would be strong.
Downtrend Line – began in early December. This pattern has manifested itself in various stocks recently including Facebook, Apple, and NVDA. Once this downtrend line is broken, it would be a BUY signal. If accompanied by a shallow pullback to retest the downtrend line near $275-$280 and form a ‘higher low’, this would be a successful retest and a confirmation.
On Balance Volume (OBV indicates share accumulation/distribution): It is interesting that the last time (October – which coincided with Musks previous SEC hearing) there was such a massive selloff in shares, the stock subsequently rallied to $370.
What does that mean at MONEYWISEHQ
The Investment Thesis for TESLA is founded on three pillars.
- Secular trend towards electric vehicles
- Scale and Scope – As production numbers increase and efficiencies in manufacturing improve, costs per vehicle decrease.
- Product Diversification – new products expand market opportunities.
Over the two months Tesla has made a number of announcements
- Building a gigafactory in China to minimize tariffs and reduce delivery costs
- Model Y announcement March 11 with 2020 production
- Deliveries to Europe begin
- Anticipated truck announcement summer 2019
Each of these supports and validates the Investment Thesis.
There are threats however.
- March 1 Tesla paid a $920 Bond which reduces the cash position.
- Musk expressed the first quarter might not be profitable
- April 4, Musk appears for a SEC hearing regarding a tweet which the SEC alleges violates the terms of a previously agreed to settlement on public disclosure of company information on twitter. If the judge imposes additional penalties/restrictions on Tesla or Musk, this could have a negative impact on the stock price.
The Technical Analysis reflects that the upside potential is substantial.
With such significant market and production expansion, it becomes harder for the short sellers to justify claims Tesla will not survive. What the short sellers need are negative catalysts and they are becoming fewer and fewer. Once the SEC hearing is complete, this is one less bullet.
During the first week of April, Tesla will announce the March monthly deliveries. If numbers disappoint, the stock price will take a hit. This has been seen almost a year ago when the March target was expected to be 2500/week and Tesla came in at 2000. The stock price climbed as numbers were not as bad as feared.
Tesla remains a speculative stock, treat it as one.
TARGET 1: $300
TARGET 2: $320
TARGET 3: $360
STOP LOSS: $270
STRATEGY
- Accumulate shares at the low risk entry price between $250-$260. Maintain a stop loss near $245.
- Accumulate shares on a breakout above $280 followed by a successful retest near $275. Maintain a trailing percentage (1%-3%) STOP LOSS as prices rise. Maintain a hard STOP LOSS price near $270 as the next level of support is $250.