Tesla, Inc. (TSLA) shares fell sharply in Monday's post-market session, settling near $334 after the company warned that it had manufactured just 260 highly anticipated Model 3 electronic automobiles despite CEO Elon Musk's bold July claim that 1,500 autos would be ready for sale by Oct. 1. The flamboyant leader warned about "production hell" at that time, and as it turns out, that prediction hit the bull's eye.

The stakes are high because the Model 3 will target a broad consumer base, offering an attractive alternative to the higher-priced Models S and Model X. Competition in this space is heating up at a rapid pace, with rival manufacturers laying out plans for competing vehicles, as evidenced by news that General Motors Company (GM) intends to produce two electric automobiles in the next 18 months. (See also: Automakers Will Get a Jolt From Electric Car Sales.)

TSLA Weekly Chart (2010 – 2017)

 

Tesla's June 2010 IPO at $19.00 drew little media attention, generating a broad trading range between $15 and the upper $30s. Price action remained stuck within those boundaries into April 2013, when the stock broke out and took off in a momentum-fueled uptrend that continued into September 2014, when it topped out at $292. A decline off that level established support near $180, ahead of a recovery wave that stalled at the prior high in the summer of 2015.

The subsequent decline cut through range support, dropping the stock to a two-year low at $141 in February 2014. It lifted back above that contested level in March and failed a second breakout attempt in April. Sellers then took control once again, generating a persistent decline that continued into November 2016, when the stock posted a higher low in the upper $170s. The subsequent uptick completed the right shoulder of a multi-year inverse head and shoulders pattern, ahead of an April 2017 breakout that stalled at $387 in June. (For more, see: Tesla IPO: 7 Years On.)

Price action since that time has settled into a trading range with support at $300, or about 10 points above the 2017 breakout level. The weekly stochastics oscillator has carved an erratic pattern since February, with bilateral waves that reflect broad two-sided price action. Tesla stock is currently engaged in a downswing that could persist into the Oct. 25 earnings report, while the monthly oscillator entered a sell cycle in June 2017, predicting relative weakness into the first quarter of 2018.

TSLA Daily Chart (2016 – 2017)

 

Price action ground out an Elliott five-wave rally pattern off the November 2016 low, while the decline into July 2017 found support at the .382 Fibonacci retracement level. The September reversal has reached the midpoint of the trading range, setting off a major test of bull power because a decline to $300 will carve a rectangle or double top, while a bounce at or above $330 may complete an ascending triangle and secondary breakout. (See also: Mercurial Tesla Stock Could See Surge in Volatility.)  

The sell pattern off the recent high is showing surprising similarity to the late June downswing, generating a possible fractal that targets the $300 level. This week's decline may also confirm resistance at the 50-day exponential moving average (EMA) for the first time since the Aug. 2 gap, setting the $350 level as an entry point for aggressive short sellers. That gap should be watched closely in the coming days because the mid-August downswing failed to fill it, establishing a secondary support line at $327.

On-balance volume (OBV) ended a bearish divergence in May 2017 when it lifted above the 2014 high. It topped out on Sept. 19 during the second breakout attempt and turned lower into October. So far at least, this reflects minor profit taking that has not undermined the long-term bullish technicals. However, volume levels may paint a different picture in coming sessions, with down days in excess of the current 5.78 million shares depressing this sensitive indicator. (To learn more, see: Uncover Market Sentiment With On-Balance Volume.)

The Bottom Line

Tesla has disappointed shareholders after missing Model 3 production goals by a wide margin, delaying a profitable rollout while rivals gear up with competitive models that will eat into the company's projected market share. (For additional reading, check out: How Tesla Could Lose the Electric Car Race.)

<Disclosure: The author held no positions in the aforementioned securities at the time of publication.>

Want to learn how to invest?

Get a free 10 week email series that will teach you how to start investing.

Delivered twice a week, straight to your inbox.