Tesla Stock May Fall Below Its 'Reversion to the Mean'

Tesla, Inc. (TSLA), the maker of luxury electric automobiles and solar panels for the home, has seen its stock fall significantly from its all-time intraday high of $389.61 set on Sept. 18, 2017. The stock ended 2017 at $311.35, down 20% from this high, but this close was in bull market territory for the year, up 45.7% in 2017.

Shares of Tesla began 2018 with strength that took the stock above my annual pivot of $341.84, with a 2018 high of $360.50 set on Jan. 23. After crashing 18% to $294.76 into Feb. 9, the stock popped 22% to a secondary high of $359.99 on Feb. 27. However, Feb. 27 was a "key reversal" day for Tesla shares, setting the stage for a bear market decline that followed. The stock had been below a "death cross" since Dec. 13, which favored a "sell on strength" strategy in 2018. (See also: Elon Musk Jokes About Tesla Bankruptcy After Nightmare Month.)

Tesla closed Tuesday at $267.50, down 14.1% from its Jan. 23 high and in bear market territory at 25.8% below the Jan. 23 high of $360.50. The stock set its 2018 low of $244.48 on April 2. On Tuesday, Tesla reported its production and delivery data for the first quarter. The car maker missed expectations, but the shares rose with the market as the company indicated that it would not need to raise additional cash this quarter. The daily and weekly charts below will help investors and traders navigate this extreme volatility.

The daily chart for Tesla

Tesla has been below a "death cross" since Dec. 13, when the stock closed at $339.03. A "death cross" occurs when the 50-day simple moving average falls below the 200-day simple moving average and indicates that lower prices lie ahead. The stock is below all key levels from my proprietary analytics. From top to bottom, the horizontal lines are my semiannual risky level of $378.69 and my annual, monthly, quarterly and weekly pivots of $341.84, $316.17, $315.70 and $281.89, respectively.

[Learn more about developing a trading strategy based on chart patterns in Chapter 5 of the Technical Analysis course on the Investopedia Academy]

The weekly chart for Tesla

The weekly chart for Tesla is negative, with the stock below its five-week modified moving average of $304.17. The stock declined to its 200-week simple moving average at $254.18 this week, which is also the "reversion to the mean," last tested during the week of Dec. 16, 2016, when the average was $196.77. The 12 x 3 x 3 weekly slow stochastic reading is projected to decline to 32.59 this week, down from 41.21 on March 29.      

Given these charts and analysis, investors should consider starting a small position at the 200-week simple moving average of $254.18 and reduce holdings on strength to my weekly risky level of $281.89. (For more, see: Why the Bulls Still Believe in Tesla.)