TSLA Stock: Valuation Is Currently Meaningless
I am bullish on Tesla Inc (NASDAQ:TSLA) stock, and have been ever since I published the report titled “Tesla Motors Inc: TSLA Stock Chart Is Bullish Once Again” on December 24, 2016, when Tesla stock was trading at $208.79.
The latest news surrounding Tesla and its lofty valuations has put a slight grin on my face; these types of headlines only serve to fuel a further rise in investments such as this one because they bring the naysayers out of the woods in order to short this company. These same naysayers—and any bullish investors who decided to sell based on the company’s valuation—will have to repurchase and chase the stock when it begins to make new all-time highs. This is the exact focus of this publication because I have reason to believe that Tesla shares are all set to make an advance and forge new all-time highs.
In my previous report, which was published on May 18 of this year and titled “An Opportunity in Tesla Stock Is Fast Approaching,” I outlined that within the context of an overall bullish trend, any price weakness should be embraced and any price action to test a couple areas of price support would act as an opportunity to acquire or build a position in Tesla.
The following Tesla price chart illustrates these levels of price support.
Chart courtesy of StockCharts.com
The two areas of price support I outlined were the 50-day moving average and the uptrend line.
The first metric used to compute a level of price support is the 50-day moving average. This tool is computed by averaging the closing price of TSLA stock over the last 50 days in order to create a smooth trend line. This moving average is used to gauge the health of an investment.
Using it is quite simple. When the actual stock price is above this moving average, it is a bullish indication that suggests that the investment is trending higher. In December 2016, Tesla broke above this moving average and it has been acting as a level of price support ever since, which is reinforcing my bullish view that was established in December 2016.
The second metric used to compute a level of price support is the uptrend line. This simple tool is created by connecting the troughs on the price chart. It effectively captures the bullish trend that has transpired since December of last year. Using the uptrend line as a tool is virtually the same as the 50-day moving average; as long as the stock price remains above this trend line, I can only assume that higher stock prices are set to prevail.
In my previous publication, I noted that both these metrics were coinciding near one price, but I focused on the uptrend line because it had more points of contact. The uptrend line was tested on May 23 at $303.48, and this was the opportunity I was alluding to, and justifiably so because a rally quickly ensued off this low.
Tesla stock is now set to test a minor level of resistance at just under $328.00. A successful break above it would open the door to much higher stock prices. The moving average convergence/divergence (MACD) indicator located in the lower panel is converging, suggesting that such an event is only moments away.
I will outline the significance of the MACD indicator using the following price chart, as well as illustrate the predominant bullish backdrop that is supporting the current advance in TSLA stock.
Chart courtesy of StockCharts.com
The TSLA price chart above illustrates a powerful combination of indicators that has created a bullish backdrop, which is supporting a further advance in Tesla shares.
The first indication creating a bullish backdrop is the constructive price action. Constructive price action consists of an alternating two-wave structure that is an essential characteristic in a sustainable trend. The first wave is an impulse wave, which serves to advance the stock price. The second wave, a consolidation wave, serves to alleviate any extreme conditions that were created in the advance, and more importantly, set up the next advancing impulse wave.
In April of this year, Tesla stock exited the consolidation wave in an upward direction. This feat is highlighted on the chart above as a “breakout.” This breakout suggests that a new impulse wave is in development, and an advance in the stock price can now be expected.
This bullish view is being reinforced by a bullish MACD signal that was generated in March of this year. MACD is a trend-following momentum indicator. This indicator uses signal-line crossings to distinguish between bullish and bearish momentum. The bullish cross that was generated serves to suggest that bullish momentum is influencing TSLA stock, where it creates an environment in which the path of least resistance is tilted in the upward direction.
Tesla stock is set up to forge new highs, and there are numerous indications on the TSLA stock chart that support this view. I am bullish, and will continue to hold a bullish view on Tesla until there are indications on the stock chart that imply another view is warranted.