Buy, Sell or Hold Tesla Motors? Whats the Confusion?

Tesla Motors (TSLA) is a leading innovation driver in the auto industry and its electric cars are definitely picking up pace with consumers. Its no close to the might of Ford (F) or General Motors (GM), but it’s definitely up to something. Its stock is zooming at a throttling pace almost like an up-cliff climb. No wonder high conviction short-sellers are in vain. Earnings growth has been stellar this year, but we should not expect earnings to grow more than 20% per year for next five years. Well, there is no point in talking about valuations right now as the rally in stock price is totally led by sentiment driven momentum.

The only notable things about Tesla are that it has started to generate profits, and is benefiting big time from carbon tax credits. It’s a joke for value investors and they won’t even keep it in their watch-list. It’s a future story and that too if there is going to be a revolutionary shift towards manufacturing of electric cars. The roaring stock price is likely to attract investors to taste a slice of this overblown opportunity, but it’s really hard to predict when the earnings will really catch up the price at which the stock is trading. Or it will be the classic other way around story?

That’s a fundamental call that an investor should take with his own reasoning as I may be wrong in saying that it’s overblown. However, I can take you through a technical chart check and we can figure out what are the possibilities in the very short term. A whole bunch of analysts that I tracked have a one year price target on this stock ranging from $40 to $230. Now, that clearly reflects the height of confusion out there among sound minds. I personally think that that this confusion will further boost the excitement around the stock, but we could see very volatile moved ahead. Anyhow, you will find my analysis helpful if you are trading the stock with a short term view. (Click on the chart to enlarge)


Identifying Short Term Price Range and Key Support Levels


I expect Tesla Motors to make a short term top around $170 and head for the lower end of the trading channel around $140. Although, it’s trading above 5 DMA, 13DMA and 50DMA, but the volume pattern shows periodic profit taking and I am expecting a bout of that very soon. Whether it will rebound once again if such a scenario plays out in next few weeks largely depends on where it takes support. Ever since the high volume breakout Tesla hasn't touched its 50 DMA even once, although it came close to that in mid July. I am refraining myself from taking a directional call over here just as any smart guy would do in such a scenario, but I have identified a few important levels on the chart which should help you with your trading strategy. However, I won't be surprised to see this stock trading around $130 in a month, what would be really astonishing is if it continues its upward journey and closes in on $200.  

9 comments:

  1. They can't even kick start production to satisfy existing demand. i wonder what investors are thinking about this company. Or, its just punters pushing the stock price higher to suck retail money. And, one fine morning the stock will fall 50% and that day on you will hate this company forever. Why do people fall for such traps? Can't they find better companies to invest and reap the dividends for years without having to worry about stock price. Stocks like Tesla are only for gamblers. Don't come back later and say that the stock market is manipulated. Its your urge for quick money that leads you into traps. So, a word of advice at last. get out of this stock and likes while the going is good. They are just selling you hope. TSLA

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    1. Thanks a ton for your insights and advice. I do have my doubts regarding the current valuations of Tesla Motors, but over the years I've leaned not to challenge markets wisdom. I think it would be fair to assume that this stock will trade between $80 and $120 over the next 2 years. But right now, it can go anywhere as the momentum is really strong. The short interest in this stock is pretty high (25% or so), so the squeeze on the upside will be more painful. In any case, it makes no investment sense to buy at current lofty levels. We should look at it when it comes down to test long term trend support line. Or, even better if the market crashes over the next few months. But the, you are right that there are so many good companies out there that are giving very positive signals for next few years.

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    2. Ranger, people have been saying the same thing about AMZN for years.

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  2. Amazing call man. It just couldn't hold above $170. Crashed all the way down. You gave conviction to my existing shorts. Just amazing amazing amazing! What should I pay you as a Tip? ;)

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    1. You must be cashing loads if shorted around $170. Cool. Feel free to use the Paypal button on the right to make contributions. That Tip Jar says more than words when Traders like our analysis ;)

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  3. I am stuck with longs in Tesla. Does that make you a horrible person ;)

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  4. Sold more than 4000 cars in first half. Is that so bullish that the stock zoomed 400%? They are no where close to leading car manufacturers. And all this hype about 35k variant hitting the market soon is irrational. Even if that car rolls out soon, they will hardly make any profit on it. Its really hard to compete in that segment and margins are too thin.

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  5. I have a strong gut feeling that Tesla Motors (TSLA) is about to witness a huge crack in next 1-2 weeks. I don't think it will respect the 50 day average this time. Some may think that the stock has been stable in the past few weeks, but it is trading in a narrow band. The longer it trades in that band, the more fierce move will come when this range resolves itself. I think it should see levels as low as $130 by October end.

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Don't keep interesting thoughts to yourself ;)