Tesla Motors, Inc. (TSLA) couldn’t get out of its own way yesterday Tuesday July 16th and after it was all set and done closed the day lower to the tune of 14.80%. The culprit? A stock and group downgrade note by Goldman Sachs (GS).
Through a multi-year perspective note that the stock traded in an orderly channel for several years until it began to explode higher, and thus out of the channel in April of this year. The stock rallied roughly 200% over the course of the ensuing three and a half months and quickly became the hot word on the street among trading pros as well as bystanders. The issue as always becomes when a stock becomes a must-have household name, which in this case, coupled with a nasty squeeze of the short-sellers, flipped the slope of the stock vertically. It is not often that I see vertical moves in stocks last longer than a few days, but the one here in Tesla Motors, Inc. (TSLA) lasted a solid three and a half months and thus statistically speaking is a serious outlier. In other words, it is just a matter of time until a meaningful mean-reversion move gets underway, and with yesterday’s price action we may now have set foot on that path.
On the daily chart investors with a close eye on the stock did get an early warning signal on Monday July 15th that the stock is due for a slide. Traders with a little more technical orientation noted a crystal clear so called dark cloud candle that day. Say what? Here’s the definition:
The dark cloud must have a closing price that is:
1) within the price range of the previous day, but
2) below the mid-point between open and closing prices of the previous day.
And Monday’s price action did just that relative to last Friday’s price action, which then was followed by the nasty selling day yesterday.
Courtesy of the vertical rally in the stock, it hasn’t so much as sniffed at any of its more moderate moving averages in some time. Take the 50 day simple moving average for example, which the stock last touched in late March. With yesterday’s sell-off the stock is now within nine percent of this moving average. Also note that since early May the stock has developed an up-sloping channel (blue parallels), which by definition, should the stock drop below would call for much lower prices and in this case likely somewhere around the $80 area.
For the right here and right now, I am not one to chase this stock lower. After yesterday’s drop I am looking for the stock to gain some composure again before I will consider the short side of the stock again.