Tesla, Inc. (TSLA) euphoria dried up in October after the company reported Model 3 production issues and missed third quarter estimates by a wide margin. Analysts believe that the company will run out of cash at the end of 2018 if revenues don't pick up substantially, putting additional pressure on the troubled rollout. An ill-timed layoff announcement and large shareholder sale have added to growing anxiety, as well as the filing of a class action lawsuit claiming racial discrimination.
The stock broke support at the 200-day exponential moving average (EMA) following the earnings miss, dropping to a six-month low at $292.63. It quickly jumped back above the psychological $300 level and has held that line in the sand for the past eight sessions. However, new resistance between $315 and $320 could attract aggressive selling pressure in the coming days, forcing a retest at the big round number, with a breakdown exposing continued downside into the April breakout above $275. (See also: Tesla Is Biggest Short in North America.)
TSLA Long-Term Chart (2011 – 2015)
The stock rallied out of two-year resistance at $40 in 2013 and went vertical, lifting to $291 in the third quarter of 2014. It then eased into a broad consolidation pattern that posted lower lows into February 2016, when it found support under $150. A higher November low attracted healthy buying interest, generating an uptick that broke a two-year trendline of lower highs in the second quarter of 2017.
The rally stalled within 13 points of $400 in June and dropped into a rectangular trading range that broke to the downside on Nov. 2. However, the stock is now trading above the July low at $303, reinstating range support that could offer a platform for a larger-scale recovery effort. The $315 to $320 resistance zone is set to challenge that thesis, with the results likely to dictate price direction well into 2018.
The monthly stochastics oscillator entered the first long-term sell cycle since July 2016 in October 2017, predicting at least six to nine months of relative weakness. This bearish technical feature raises the odds for a breakdown through $300 and a test at breakout support that could offer a long-term buying opportunity. However, the weekly indicator has just reached the oversold level, suggesting that market players are getting ready to jump back in with deep value positions. (For more, see: Tesla's Model 3 Is the 'iPhone of EVs': Instinet.)
TSLA Short-Term Chart (2015 – 2017)
The stock carved an Elliott five-wave rally pattern after settling near $180 in the fourth quarter of 2016, with the third wave continuation gap also marking the breakout gap above the two-year trendline. It completed the fifth wave in June 2017 and entered a correction that is now testing the .382 Fibonacci retracement level. That level has roughly aligned with the 200-day and 50-week EMAs as well as round number support at $300.
The rally set could mark the third wave in a larger-scale Elliott pattern off the February 2016 low at $141, with the current range grinding out a fourth wave consolidation ahead of a larger-scale fifth wave that could lift well above $500. This long-term bullish thesis will survive as long as the stock doesn't sell off through $272, but current shareholders hope that $300 will mark a tradable low ahead of a strong bounce that reaches new highs.
On-balance volume (OBV) peaked in 2014 and entered a distribution wave that finally ended in December 2016. Buying power into September 2017 lifted the indicator to a new high, ending a long-term bearish divergence, while the pullback since September has reached a four-month low. Recent selling pressure hasn't set off major sell signals, but that's likely to change if $300 breaks because the violation will likely trigger a cluster of physical and mental stop-losses. (For more, see: Tesla's Margin for Error Is 'Uncomfortably Thin'.)
The Bottom Line
Tesla stock is getting sold after the company missed production targets, but it is holding well above breakout support over $275. Price action is now well balanced between bulls and bears, raising the odds that $300 will hold and generate a sizable bounce. However, all bets are off if another round of bearish catalysts hits the newswires, setting the stage for a climactic decline that could offer a long-term buying opportunity. (For additional reading, check out: Tesla: Elon Musk Takes Blame for Production Delays.)
<Disclosure: The author held no positions in the aforementioned securities at the time of publication.>