Tesla's Stock May Break Out Triggering a 17% Rise

(Note: The author of this fundamental analysis is a financial writer and portfolio manager. He and his clients own shares of TSLA)

Tesla Inc.'s (TSLA) stock has been on a wild ride with shares rising and falling rapidly. However, all the volatility has resulted in shares plunging by more than 30% from their 2018 highs. The good news is that technical analysis stock may be about to rise by as much as 17% from its current price of around $255.

The recent surge in volatility, though, is unlikely to ease anytime soon if the options markets are to be believed. In fact, with Model 3 delivery results for the third quarter out of the way the big focus has turned to whether the company will able to turn a profit this quarter; analysts think it may be very close. 

TSLA Chart

TSLA data by YCharts

Strong Support at $251

The stock has fallen in recent weeks to a critical level of technical support at $251. That is a support level that has held firm since March of 2017. Should Tesla's stock rise above technical resistance at $261 the stock has a clear path higher to its next level of resistance at $301.

Holding Firm

Even more interesting is that Tesla's stock has held up remarkably well despite all the recent volatility in the broader markets over the past few days. From the close of October 5 through mid-day October 12 Tesla's shares have only dropped by 1.75%. That is versus about a 4% decline in the S&P 500 and NASDAQ.

TSLA Chart

TSLA data by YCharts

More Volatility In Store

The options market is suggesting that the volatility for the stock isn't over. The long straddle options strategy indicates that the stock price could rise or fall by as much as 20% from the $255 strike price for expiration on November 16. It places the stock in a giant trading range of $206 and $305.

Will They or Won't They

One reason for the uncertainty - profitability. With production of the Model 3 ramping up in the third-quarter analysts are looking for revenue to have more than double to $6.3 billion during the quarter. But the big question surrounds whether the company will turn a profit. Analysts are forecasting the company to have a loss of $0.05 per share. That is better than estimates in July that were forecasting a loss of $1.11 per share.

If Tesla can show a profit in the third quarter, it may calm the nerves of some investor that feel the company may need to raise more capital to fund operations. Additionally, it is may also likely quiet some of the skeptics who said they couldn't, at least for a little while.

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 holdingsInformation 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.

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