TSLA Stock: Bullish Wheels in Motion
After the close of trading on January 3, 2017, Tesla Motors Inc (NASDAQ:TSLA) released its sales numbers for 2016, and it’s unfortunate that it missed by the slimmest of margins.
Expectations set by the company were for 80,000 units, but Tesla was only able to produce and deliver 76,230 vehicles. As a result, Tesla stock was trading lower after hours.
The timing of this news is not the greatest, because I just turned bullish on Tesla stock in mid-December. Regardless, this announcement will not sway my view, and I believe that the market will actually shrug off this disappointing news because the wheels towards higher prices are now in motion, and any weakness will rectify itself in short order.
My bullish view on Tesla stock is based on the pattern that the price has just completed. Prior to the completion of this pattern, I was bearish on TSLA stock as it drifted lower.
For those not familiar with my work, I use technical analysis as the framework to analyze potential investments. Technical analysis uses past volume and price data to discern trends and forecast future prices. I have used this method of investment analysis to create trading strategies for over a decade, and I have enjoyed great success doing so. It is this style of analysis that is now suggesting that a bullish view is warranted in Tesla stock.
The following Tesla stock chart illustrates the pattern that suggests a bull market in TSLA stock has just reasserted itself in December 2016.
Chart courtesy of StockCharts.com
The stock chart above illustrates that TSLA stock, as of mid-December, had broken out of a consolidation pattern that spanned nearly 10 months.
When a consolidation pattern is complete, the price will exit the pattern via a breakout, and a new impulse wave is now in development.
Healthy price action consists of impulse waves that take a stock to new price levels and then give way to consolidation waves. A consolidation wave serves to unwind any overbought or oversold conditions that were created when an impulse wave took the price to a new level and—most importantly—consolidation waves set up the next impulse wave.
The theory behind impulse waves that are separated by a consolidation wave is that the preceding and subsequent impulse waves tend to mirror each other in terms of the price. This is extremely important when setting up a potential trade because it provides a necessary price objective. This is why I specifically look for consolidation waves when I scan for potential trade ideas.
The other—and more important—reason I like consolidation waves is that they are effective in defining risk. After a consolidation wave is complete and the price exits this wave, it should not re-enter the consolidation wave. Re-entering the wave is a warning that the pattern is failing, and an appropriate stop-loss order should be set shortly after a position is initiated.
The price objective is created by taking the length of the first impulse wave in dollars and extrapolating it from the lowest point in the consolidation wave. The pattern illustrated on the TSLA stock chart above is suggesting that $310.00 is a potential price objective that should be roughly targeted.
This price objective is also suggesting that TSLA stock is set to make a new all-time high, and such a feat with a company with such a large short interest could set off a massive short-covering rally in Tesla stock.
Bottom Line on TSLA Stock
Tesla stock is set to trade lower on the news that it did not meet sales expectations for 2016, but these kinds of misses are no longer a surprise, as Elon Musk has missed his projections on more than one occasion. As a result, I believe that TSLA stock will shake off this bad news because a bullish tailwind that began to swirl in December is still in force.