A Fundamental and Technical Spotlight on Tesla

Tesla Inc. has been a slow-motion train wreck.

All thanks to un-CEO behavior from Elon Musk.  

In September and October 2018 shares plunged after video surfaced of him smoking pot on a podcast. That was in addition to resurfaced conflict with a British cave explorer, and Musk’s tweet that he was “considering taking Tesla private.”

Matters got worse when the company revealed that Chief Accounting Officer, Dave Morton resigned over intense public attention. Then, company HR chief Gaby Toledano parted ways with the company, too. Even Vice President of Communications, Sarah O’Brien left.

Then Goldman Sachs reiterated its sell rating on the stock with a $210 price target.

All thanks to the company’s debt-riddled balance sheet and electric vehicle competition. 

In short, a nightmare was unfolding. 

However, as we noted in September 2018, the chaos may have been fully priced in, per technical pivot points. In fact, in September 2018, we noted:

Each time the stock has pulled back to its current price dating back to February 2017, it’s bounced back. If it can hold triple bottom support, we could see a near-term recovery. In addition, the stock is now outside its lower Bollinger Band (2,20). It’s also at a historic low on relative strength (RSI), MACD and Williams’ %R (W%R). Should it bounce from oversold conditions, we could potentially see a bearish gap refill around $340. 


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And that’s exactly what happened, as you can see in the chart.

Helping to fuel the run, a judge approved the settlement of the US SEC’s complaint against the company and Elon Musk. However, with the news priced in, we believe the stock is prone to weakness with overbought conditions.

The very same indicators that told us to buy TSLA, we’re telling us to sell in late October 2018. Take a look at the chart above again.  One, the stock is beginning to fail at overhead resistance at its upper Bollinger Band (2,20).

Two, RSI is beginning to break down where it did the last two times.  MACD is over-extended.  And Williams’ %R (W%R) is above its 20-line – exactly where it’s been each time the stock nears a pullback. Should the stock fall apart here, we believe it could challenge triple-bottom support just under $250 a share. 

With technical analysis, nothing is set in stone. 

But with history as a guide, caution is warranted. 

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