Tesla continues to trade lower in search of buyers, many are saying the momentum in the stock is broken. In terms of the short term trend they are correct. I think we have done a pretty good job of staying in front of this stock in terms of technical. We pointed out a couple weeks back that $180 was going to be resistance pre-earnings and how the failure below was likely to take the stock price closer to the $115 level. And so far that is exactly what is playing out. So now let’s look at the big picture to see how this stock has reacted in the past.
This daily chart above shows price action off Tesla’s IPO in 2010, into early 2013 just as the stock went parabolic. As we can see this stock is no stranger to volatility. Off of it’s Initial Public Offering the stock proceeded to drop 50% from $30 to $15 dollars a share before finding support and making a new high.
Now each time the stock made a new high it proceeded to correct 42% the first time and 36% the second time. So basically once a year since it’s inception this stock has experienced a significant correction. Quite typical for a new stock and a new technology working out the “bugs”.
So now in light of that information, the current correction in Tesla doesn’t look all that bad just yet. In this daily chart above we see the price action for 2013 and see we are clearly in our “once a year correction” mode.
From current lows from yesterday at $119 we have a 38% correction which is right in the sweet spot of the previous years drops. Coming into potential strong support below at $115 and then $104.50 with a 200 day moving average coming in around $108 as well.
Since this is quite a volatile stock the most prudent thing to do here may be to wait for buyers to show up again and ride the momentum back up. One thing I do to judge momentum is to measure the size of the retracement rallies and see if buyers can break the pattern of weakness.
So on the 60 minute chart above we can see the price action going back to the all time highs at $194. Each retracement rally has measured roughly 28 points in length. So if yesterday’s low at $119 holds the next projected resistance would come in at $146.32 – $147.58.
If we can see continued strength above that resistance zone or if we make new lows, a greater than 28 point retracement rally off that low would be your first sign of potential change in the short term trend.