Why Tesla's Stock Can Soar to New Highs

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

Tesla Inc. (TSLA) shares have had a wild ride over the past 52 weeks, with the stock up by nearly 40%. But it also fell almost 10% off its high, last seen in mid-September. But after a slew of adverse events from Model 3 bottlenecks and mounting quarterly losses, signs are starting to emerge that perhaps the worst is now behind the company. An analysis of Tesla's chart suggests the stock may be reflecting that change in sentiment and could make its way back to those all-time highs, if not higher, in the not to distant future. (For more, see also: Why the Bears Won't Win at Tesla.)

Reports that increasing demand for the Model S and X are creating backlogs for Tesla are now circulating, while reports are also surfacing that Tesla is opening Model 3 orders to non-owners for the first time. Even Bloomberg is tracking that the number of Model 3's that are being produced per week are rising, and currently stands at about 1,050. The sentiment has seemingly started to shift from negative to positive. 

Sharp Snap Back

Tesla got crushed in the latest stock market selloff with the stock falling by over 12.4% from January 31 through February 9, while the S&P 500 fell by only 7.2% during the same time. But Tesla snapped back recouping all of it loses, rising by nearly 13.4%, versus the S&P 500's rise of only 4.9%. 

Strong Support Level

The chart above shows what appears to be an impenetrable wall of technical support between $290 and $300—even the most bearish of news has been unable to break support. As the stock has risen, it has cleared two multi-month downtrends, while the third downtrend appears to have just been breached. Meanwhile, each level of technical resistance is also being taken out. (For related reading, see also: Tesla's Big Breakout May Fuel Stock to Record High.)

The chart also shows that the relative strength index (RSI) is now trending higher as well, and currently has a reading of roughly 60. An RSI reading over 70 is considered overbought, and the stock's current RSI reading suggests the stock could continue to rise in the coming weeks, without reaching overbought conditions. 

A Climb Back to $386

If the price of the stock can manage to advance beyond $359, it has a reasonably clear path at this point that can lead back to its previous highs at roughly $386, a rise of approximately 10% from its price of $352 on February 23.

If the news flow is truly starting to turn in Tesla's favor, and the company can reach its target of 2,500 Model 3's by the end of March, it could be a sign that the stock may even have room to rise to $400. But it will all depend on how much positive momentum Tesla can generate in the coming weeks. 

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 holdings. Information 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.