Investors like Tesla Motors, Inc. (NASDAQ:TSLA) stock because of the company’s great potential and Elon Musk’s charisma. But Tesla stock traders are also in it to make money. So it might not be a bad idea to see where TSLA stock is heading next.
Short Term: Major Resistance Levels Ahead for Tesla Stock
TSLA stock took a huge hit since touching $286.65 last July. In just over six months, Tesla shares plunged 47.4% to a 52-week low of $141.05. Now, after the company’s earnings report on February 10th and Elon Musk’s bullish guidance, the stock is trending up again. The question is: will the trend continue?
Looking at the chart below, I am a bit worried.
Chart Courtesy of www.StockCharts.com
First, let’s acknowledge that the surge after the earnings report was kind of expected. I mean, the Relative Strength Index (RSI) dipped below 30, indicating that the stock was extremely oversold. When good news came up and short sellers ran for cover, TSLA stock shot up.
But based on the stock’s past performance, the upward trend will not be smooth.
You see, there used to be strong support for Tesla stock at around $205.00, as indicated by the horizontal line. In the past 12 months, the stock tested that support five times before finally breaking below it in January 2016.
A previous level of support can change its role and become a short-term resistance level. In fact, this kind of reversal happens very frequently, even on the charts of the biggest names. So, if this is the case for Tesla stock, the $205.00 mark would become a new area of resistance. Investors should be cautious now, because the stock is less than 10% away from that level.
Also note that the series of lower highs and the horizontal support has formed a descending triangle. The downward trendline connecting these lower highs is currently touching the 200-day moving average. Sometimes the negatively sloped trendline also becomes a new resistance level for the stock. And if that’s the case, TSLA bulls would have to push through two resistance levels to reverse the downward trend.
Of course, when looking at a stock, one cannot ignore the company’s long-term outlook. And on that front, Tesla has got it covered.
Today, Tesla stock investors care more about what the company can do next rather than how well it has done in the past. And that’s a good thing because Tesla’s most recent earnings report didn’t really meet expectations.
In the fourth quarter of 2015, Tesla generated $1.75 billion in revenue and posted an adjusted loss per share of $0.87. (Source: “Tesla Fourth Quarter & Full Year 2015 Update,” Tesla Motors, Inc., February 10, 2016.) Analysts polled by Bloomberg were expecting $1.81 billion in revenue and $0.10 in adjusted earnings per share. (Source: Hull, D., “Tesla Jumps After Projecting Up to 78% Growth in Deliveries,” Bloomberg, February 10, 2016.)
What cheered investors up was its forward guidance. Tesla projected that it would deliver between 80,000 and 90,000 “Model S” and “Model X” vehicles this year, beating the 76,200 deliveries expected by analysts. Moreover, the company’s forecast of 16,000 deliveries in the first quarter also topped the analyst estimate of 15,200.
In an era where global economic growth is slowing down, you might wonder if Tesla can really achieve those kinds of numbers. But going by what happened in the luxury car market last year, I’m quite optimistic.
You see, most luxury car-makers didn’t have a great year in 2015. Sales of the “Mercedes S-class,” the “Audi A8,” and the “Porsche Panamera” were all down more than 10% compared to 2014. The “Tesla Model S,” on the other hand, increased its sales by 51.01%. And Tesla achieved this without any advertising. That’s impressive!
The Bottom Line on TSLA Stock
Bottom line, Tesla is a great company. While TSLA stock might be facing several resistance levels in the next couple of months, its outlook is undoubtedly bright.