Tesla (TSLA) Running Out Of Battery

When considering a clever title for this article, it didn’t seem prudent to use my favorite choice: “Elon Musk Needs That New Car Smell”. So alas, you get a clever title and reference to a snarky title that didn’t get used. See what was done there? We used a funny title while saying we didn’t use it, when in fact, we did. And secretly, you kinda like it.

One of the more anticipated earnings releases is less than a week away for one of investors’ most favorite transformative car makers, Tesla (TSLA), run by multi-faceted business magnate, Elon Musk. While appreciating Elon’s business intellect and execution prowess, we see potential trouble for Tesla’s stock price.

Let’s jump right into it with a look at TSLA’s weekly chart. By visualizing and studying price, we can identify areas where logical changes in supply and demand should occur. And when logical areas of demand fail, we sit up and take notice. Here’s the chart:

02-04-2016 TSLA Weekly

It is quickly apparent that during the past two years, buyers stepped in and bought TSLA in the 180-190 price range. Similarly, when demand drove price up to the 270-280 price level, sellers quickly unloaded the stock, driving price back down. Two days ago, TSLA reached the 180 level again and something changed: Not enough buyers! Where’s the demand? Accordingly, price quickly fell through 180 and on to a new two year low for the car maker. This is known as a breakdown and makes further price declines much more likely. Frankly, there is no reason for us to own this stock below 180.

Zooming in, let’s take a look at TSLA on a daily chart and understand the power of breakouts, breakdowns, and false moves.

02-04-2016 TSLA Daily

When breakouts (through supply) or breakdowns (through demand) take place, further price moves in the prevailing direction are likely. In this case, TSLA is most likely headed to lower prices – targeting 120 and 100. However, there are times when breakouts and breakdowns fail. These are called false moves. And from false moves come fast moves in the opposite direction. Case in point, twice price broke through supply near 270, only to fail and quickly move in the opposite direction (down). Though not likely, TSLA can do the same here. A move back up through 180 would indicate a false breakdown occurred and price would move quickly upward. Accordingly, we like TSLA above 180. Below that level and we’re not interested.

Until next time, trade safe.

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Disclaimer: Nothing in this article should be construed as investment advice or a solicitation to buy or sell a security. You invest based on your own decisions