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)
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.