(Note: The author of this fundamental analysis is a financial writer and portfolio manager. He and his clients own shares of TSLA.)
Tesla Inc. (TSLA) shares are breaking out in a big way and could be set to rise to a new all-time. The stock will first have to face a retest of its old highs at $386, a rise of about 14 percent from its current price around $338. Ironically, this massive breakout comes on the heels of terrible delivery results for Tesla's newest four-door sedan, the Model 3, as the company pushed back its ramp-up rate on production. (See also: Tesla Model 3 Production Estimate Slashed 75% at Cowen.)
Tesla stock is proving to be much more resilient to the negative news than many had anticipated following the disappointing update. In an Investopedia article on January 8, we noted that the bears got all the negative news they could have asked for, yet the stock failed to retreat. (See also: Why the Bears Won’t Win at Tesla.)
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A Rise To New Highs
This leaves the stock with only one direction to go, and that is up. And that's precisely what the stock is doing as it breaks out. With only mild resistance levels in the mid-$340 range, Tesla could see its price rocket back to its old highs around $386 and perhaps rally to new highs, because a failed double-top pattern makes a failure at $386 on a third attempt less likely.
The chart above shows how shares are breaking out, rising above a downtrend that started the last time the stock peaked in September 2017. When looking at the chart, you could see a double top formation, formed by the two peaks in price around $386. But the trading action never completed the configuration because the stock never broke the blue neckline, or area of support, around $300.
The chart is also showing that volume has been spiking higher in conjunction with the stock's recent rise, while the relative strength index (RSI) is rising as well. These are two bullish signals.
Bullish Option Bets
The options market seems to agree that a breakout may be on the way using the long straddle options strategy set to expire on February 16. The $340 strike price is implying that shares of Tesla could rise or fall by $30, the cost of buying one put and call. That puts the stock in a range between $310 and $370, or 18 percent. But the number of calls out favor the puts by a margin of nearly 2.5 to 1. This suggests that options traders could be positioning themselves to see Tesla shares rise to prices over $370 over the next few weeks.
A breakout would be a massive win for the Tesla bulls, one which likely sends the bears running for the hills.
Michael Kramer is the Founder of Mott Capital Management LLC, a registered investment adviser, and the manager of the company's actively managed, long-only Thematic Growth Portfolio. Kramer typically buys and holds stocks for a duration of three to five years. Click here for Kramer's bio and his portfolio's holdings. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Upon request, the advisor will provide a list of all recommendations made during the past twelve months. Past performance is not indicative of future performance.