(Note: The author of this fundamental analysis is a financial writer and portfolio manager. He and his clients own shares of TSLA.)
When market pulls back sharply as it did on December 1, the downdraft can provide valuable clues about the direction of specific stocks once the volatility has passed. Tesla Inc. (TSLA ) is a perfect example: its shares barely sold off during the stampede. Undoubtedly, Tesla has been one of the most volatile stocks in the market in 2017, and the way it handled last Friday's volatility suggests the stock may be poised to rise heading into the end of the year. (See: Stock Prices Plunge On Emotion, Not Reality
Relative to the S&P 500 and the iShares Russell 2000 ETF (IWM), Tesla hardly budged and appeared to have a firm bid supporting the stock all day long at a price of approximately $305 to $306. The Russell 2000 ETF fell by nearly 3 percent at its trough while the S&P fell by almost 1.7 percent. Tesla's shares were up slightly as of early afternoon trading on Monday.
Strength In The Face of Uncertainty
Stocks that show strength in a period of volatility can indicate that it's set to rise, and Tesla stock had a firm bid in place throughout the trading day. The chart below shows how well the stock held at $306 and didn't even retest the lows of $302 from November 29. It suggests that shares of Tesla are trading at the bottom.
Shares of Tesla have held around $303 for some time, ever since its latest meltdown back on November 2, giving the stock a month-long period of consolidation. The price action on December 1 demonstrates that buyers were relentless and willing to soak up the liquidity the sellers and the short sellers were ready to throw at them.
What is also interesting is that volume didn't even see a meaningful uptick, staying below its 90-day moving average and likely means the sellers and the short sellers didn't even try that hard to press the stock lower amid the wild trading session.
Tesla's shares have been on wide ride this year, soaring by June and then plunging amid a spate of bad news about car battery problems, massive production delays with the Model 3 sedan and gigantic cash problems - just to name a few good reasons for a stock to fall. The last few weeks of 2017 may determine whether Tesla's share can truly recover - or if the stock on December 1 was a one-day wonder.
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.