Tesla Stock Bouncing Back After Musk Misfire

Tesla, Inc. (TSLA) CEO Elon Musk stunned Wall Street analysts during last week's earnings conference, cutting off questions about the controversial automaker's capital requirements and customer reservations. His reaction to "boring bonehead" questions triggered a double-digit decline and quick $3 billion loss in market value. Tesla stock has bounced back since that time, but the outburst could undermine longer-term buying interest and investor confidence.

The stock entered a stealth downtrend after topping out near $390 in June 2017 and has been flirting with a 52-week low in recent months, caught between an April 2017 breakout and March 2018 breakdown. This holding pattern is likely to generate a strong trend move as soon as the battle between low Model 3 production levels and high cash burn provides a clearer view of Tesla's ability to survive and prosper into the new decade. (See also: Is Elon Musk Making Things Worse for Tesla?)

TSLA Long-Term Chart (2010 – 2018)

The company came public at $19.00 in June 2010 and posted an all-time low at $14.98 one month later. The subsequent uptick mounted the IPO opening print in November, ahead of a buying spree that stalled at $36.42 in December. Multiple breakout attempts failed into the second quarter of 2013, when the stock took off in a momentum-fueled advance that stalled in the $260s in February 2014.

A pullback into May established support in the $180s, ahead of a rally wave that exceeded the prior high by 26 points in September. It sold off from that level, triggering a failed breakout while reinforcing a broad trading range that broke to the downside in January 2016, dropping the stock to a two-year low at $141.05. It remounted broken range support two months later, trapping short sellers in a squeeze that reached range resistance in April.

The stock posted a higher low in the $180s after the presidential election and took off in a positive feedback loop that cleared major resistance in April 2017. Long-term trend followers then entered aggressive positions, but the uptick ended just two month later near $387, generating a September test at that level, followed by a downtrend that broke a 10-month double top and the 200-day exponential moving average (EMA) in March 2018.

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TSLA Short-Term Chart (2016 – 2018)

A decline into April 2018 undercut the 2017 breakout level by 40 points, but the stock bounced strongly, once again shaking out overeager short sellers. It is now trading in no-man's land, stuck between triangle resistance above $310 and breakout support stretched between $270 and $290. Neither long nor short positions make sense within this battleground, which could persist until Model 3 production levels take off or the company runs out of cash.

On-balance volume (OBV) topped out in 2014 and entered a broad distribution wave that finally ended in the first quarter of 2016. Buying pressure into 2017 reached the prior high, ahead of a breakout that coincided with bullish price action. The indicator carved a topping pattern into 2018 and broke support in April, triggering a bearish divergence that raises the odds of price following suit in the coming months.

Broken double top support roughly aligns with the .382 Fibonacci retracement of the uptrend into 2017 and the round number $300, while the 200-day EMA has now turned lower at $315. The price band between $300 and $320 now marks major resistance that will take considerable buying power to overcome, with a breakout setting off bullish signals that could generate an advance above $400. Conversely, a decline through the 2015 high at $287 would sound a warning bell that could presage downside through $200. (For more, see: Tesla Shorts May Soon Lose Their Attractiveness: S3 Partners.)

The Bottom Line

Tesla broke a triangle top in March 2018, confirming a downtrend that started in May 2017. However, the stock is still holding the last level of major support and could recover if the persistently negative news flow dissipates. (For additional reading, check out: After Call, Tesla Gets Most Bullish Forecast Yet.)

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