Tesla, Inc. (TSLA) has struggled with the Model 3 production ramp-up in recent months, forcing CEO Elon Musk to backtrack on ambitious goals he has outlined for the highly anticipated electric automobile. That could change after this week's earnings report, with a little good news having an outsized impact on recently weak buying interest. It is urgently needed at this point, given rapid cash burn that could empty company coffers before the end of 2018.
Musk has been firing on all cylinders in other recent projects, including the successful launch of SpaceX's Falcon Heavy rocket and selling out an inventory of 20,000 flamethrowers through his Boring Company. Loyal but frustrated shareholders hope that this momentum escalates into publicly traded Tesla, lifting the stock through heavy resistance between $350 and $400 and into a major uptrend. (See also: Elon Musk Biography.)
TSLA Long-Term Chart (2010 – 2018)
The company came public at $19 in June 2010, quickly selling off to $14.98, which marks the lowest low in the past eight years. It bounced into the mid-$30s a few months later and settled into a broad trading range, testing resistance several times before breaking out in April 2013. The subsequent uptrend advance posted dramatic gains into the third quarter of 2014, topping out just below $300.
Sideways action into 2015 generated strong support just above $180, with that level finally breaking down in the first quarter of 2016, dropping the stock to a two-year low at $141. It popped back above broken range support two months later, denying short sellers while generating a failed breakout attempt. The stock pulled back to the contested level once again after the presidential election, posting a higher low that established a strong platform for an April 2017 breakout.
That trend advance lasted just two months, lifting to a new high at $387 and pulling back to $300 in July. It returned to range resistance in September, exceeding it by less than three points before aggressive sellers took control, generating a selling wave that undercut the July low. Deeper support at the April breakout level held, with the subsequent bounce drifting into the midpoint of the 10-month trading range ahead of this week's earnings report.
The monthly stochastics oscillator is perfectly positioned for bulls heading into the release, crossing over at the deepest oversold technical reading since December 2016. This predicts at least six to nine months of relative strength, suggesting that bulls will ultimately prevail, lifting the stock through resistance and into a rally impulse that could eventually cross $500 while silencing Musk's many critics. (For more, see: How Tesla Mauled the Bears.)
TSLA Short-Term Chart (2016 – 2018)
The stock has carved a seesaw trading range since May 2017, loosely outlining a rectangle or head and shoulders pattern. A bearish reaction to the report needs to hold the red line near $310 to avoid a downswing that completes the head and shoulders pattern and favors a more bearish outcome, including a failed breakout and descent through $250. Conversely, a rally that exceeds the Jan. 23 high at $360 opens the door to a second test at range resistance, completing a more bullish rectangle that could yield a major breakout.
On-balance volume (OBV) peaked in 2014 and drifted through a long distribution phase, finally turning higher in the fourth quarter of 2016. It posted a new high in September 2017 and has pulled back into 2018, indicating that funds and private investors are sitting on their hands, concerned about the slow Model 3 ramp-up. However, it will take just a few higher-than-average rally days for the indicator to hit another high. (See also: Tesla Stock Poised to Rebound By March, Traders Say.)
The Bottom Line
Tesla heads into earnings with relative strength indicators turning up from deeply oversold technical levels. This pattern strongly favors bulls following the release, with the potential to break resistance and head into a new trend advance. (For additional reading, check out: Tesla Raises $546M in First Asset-Backed Deal.)
<Disclosure: The author held no positions in aforementioned securities at the time of publication.>