TESLA (TSLA) TECHNICAL ANALYSIS

• Tesla has a number of catalysts withi;the upcoming year which will boost sales volumes.
• There is one imminent threat, the maturing of issued bonds in March.
• The stock is entering a convergence of two powerful technical patterns simultaneously indicating an impending powerful move.

Money Flow Index (80 is Overbought, 20 is Oversold) – at 49, the MFI is Neutral reflecting room to the upside. A selloff to near 20 from a neutral level would likely have limited downside corresponding to a price near $280. The MFI has been neutral since mid January even though the stock price has fluctuated within a $50 range.

MACD Momentum – is flat but in an uptrend and the Black and Red Lines are even. The Black Line curling upwards would be a BUY signal, down a SELL signal.

On Balance Volume (OBV indicates share accumulation/distribution) – the OBV has traded within a very tight range with selling pressure equally balancing buying. This has been steady since November 1, even though the stock price has traded between $280-$375. The reading is currently near the bottom of the range reflecting limited supply in the event of a selloff.

There are two powerful Technical Patterns developing.

1. A Descending Wedge – defined by Technical Support near $300, and a series of ‘Lower Highs’. The stock price is currently near the apex of this wedge. The stock price will break out of this wedge either up or down.
2. The Upper and Lower Bollinger Bands (Green Lines on the chart) – are compressing to form a ‘Volatility Squeeze’ which signals an impending price movement, either up or down.

What does that mean at MONEYWISEHQ

This stock is about to make a move, it just needs a catalyst..

In the short term, Tesla faces a maturing debt obligation in March. If the shares are at a price of $360, bond holders can convert the bonds to shares or to a cash payment. If the shares do not reach that price, Tesla will have to make a cash payment in the amount of $920M. In the latest earnings report, Elon Musk started the company had $3.2B cash on hand and enough to pay the bonds if required. A conversion from bonds to shares will hav3 the effect of diluting the share count, which will affect stock price.

In the long term, the company will announce a truck in the summer, begin production of a Model Y SUV in 2019, begin deliveries to Europe in Q1 2019, has started building a production factory in China with plans to start production by end of year 2019 which the company expects will take production current levels near 5500/week to 10,000/week. Chinese production would also lower ‘made in China’ vehicle costs for local delivery.

Tesla has been a ‘Short Sellers’ stock for years. The Bear Market of October 2019 was a perfectly engineered setup for computer algorithm and short selling, and that has to be monitored. Most generally there would be a pullback in the market to form some kind of ‘retest’ or establish a ‘higher low’. This is what most traders are positioned for.

It’s important to be aware of the potential for short selling setups.

The consistent OBV in a low and tight range, combined with a neutral MFI, slowly uptrending MACD Momentum still below the ‘Zero’ line, and a Technical Support Level at $300 and then the next level at $280 does not seem like a setup for a large short selling program. 

The descending Wedge and approaching Volatility Squeeze signal a move is coming which would follow one of two scenarios;

1. It is possible that the stock price might be ‘goosed’ up to $360 so that the company doesn’t have to pay the debt obligation, or 
2. the stock might be sold short forcing it down so the company does have to pay the $920M cash, which would affect the balance sheet and likely force the stock lower.

Price is a function of Supply/Demand. The low OBV and MFI reflect limited Supply and the low Momentum does not reflect a ‘run up’ which would be sold off. The OBV and MFI levels dropping to ‘Oversold’ levels might correspond near a downside risk of $280 which has been a long term secondary Technical Support Level.

Downside Risk: $300 then $280 (7%)

Upside Reward: $320-330 then $360 (10-20%)

In the long term, the potential to double production and corresponding revenues is a difficult catalyst for short sellers to bet against.

Strategy: 

1. wait for a breakout above the ‘Wedge’ to a price near $315 and maintain a Trailing Stop Loss as a percent between 1-3%, or
2. Accumulate near the low risk entry price of $300. Maintain a disciplined STOP LOSS price near $298 with the view to repurchase near $280 or a subsequent rise above $300.