Tesla, Inc. (TSLA) shares fell more than 7% in pre-market trading after the electric vehicle manufacturer announced plans to sell $2 billion worth of common stock in an underwritten deal. By the end of the day, the stock recouped all of its losses and ended more than 4% higher, as analysts called the company's move prudent given the recent run-up.
The $2 billion capital raise will bolster Tesla's balance sheet and support its ambitious growth plans, including a new factory in Germany and a possible factory in Texas, according to analysts. CEO Elon Musk will purchase up to $10 million in new shares under the deal, while board member Larry Ellison will buy up to $1 million in stock.
In addition to the capital raise, the company disclosed that the Securities and Exchange Commission (SEC) issued a subpoena on Dec. 4, 2019, seeking information about "certain financial data and contracts including Tesla's regular financial arrangements." The Department of Justice had also asked the company voluntarily to provide information regarding financial deals.
From a technical standpoint, the stock experienced a bullish engulfing that suggests further upside potential ahead. The relative strength index (RSI) remains in overbought territory with a reading of 70.73, while the moving average convergence divergence (MACD) has flatlined over the past few sessions. These indicators suggest that the stock could consolidate.
Traders should watch for consolidation between reaction highs of $819.99 and reaction lows of $689.11. A breakdown from reaction lows could lead to a move toward trendline support at $442.80, while a breakout from reaction highs could lead to a move toward elusive $1,000 levels over the long term. However, consolidation appears most likely at this point.
The author holds no position in the stock(s) mentioned except through passively managed index funds.