Tesla (TSLA-US) was sold in a bloodbath on Monday (24th), leaving the bulls at a loss to find when and where the stock price can bottom, and to spy on Tesla’s short-term stock price trend, “Barron’s Business Week” contributor Al Al Root believes there are some moving averages that investors must keep in mind.
Tesla tumbled as much as 9.8% on Monday, hitting a low of $851.47, then the stock rose back above $78, and finally closed at $930 per share, with the decline converging to 1.47%. U.S. stocks almost all rebounded sharply on Monday, but compared with the broader market, Tesla’s decline was still larger. Both the S&P 500 and the Dow closed up 0.3 percent on Monday, while the Nasdaq rose 0.6 percent.
U.S. stocks did trend a bit crazy on Monday. The Dow once fell by more than 1,000 points, and the Nasdaq Composite Index once fell by 4.9%, the largest one-day amplitude since October 10, 2008. The low point of the Nasdaq fell 6.2%, but It ended up 0.3%.
This big rally has made Tesla’s stock price even wilder recently. Tesla’s stock price soared 13.5% on the first day of 2022 as the 309,000 vehicles delivered in the fourth quarter far exceeded Wall Street’s forecast of 270,000.
But then rising interest rates, inflation and macroeconomic concerns began to weigh on high-growth stocks. After the first day of the year, Tesla shares were down about 27% as of Monday’s session lows, while the Nasdaq was down about 16%.
Fundamentally, there doesn’t seem to be much of a problem. Higher interest rates will only hurt fast-growing stocks even more, because most of the earnings and cash flows of growth companies are generated in the future, and once interest rates are raised, future cash flows will be less valuable in today’s dollars.
Fundamentals are clearly not an issue, as traders typically look at charts and trends to determine whether Tesla shares have fallen too far.
Tesla is in trouble after shares fell below the 50- and 100-day moving averages (MA) last week. MA is one of the important indicators used by traders. Shares can find support at the MA, but it may also struggle to break out of another MA when the price rises.
If Tesla stock is below $930, the next important benchmark to the downside is the 200-day MA around $810. While there are many other technical indicators to watch, the MA line is the key for investors to watch in the coming days. If the sell-off doesn’t stop, this should be the worst-case scenario for the stock.
Tesla’s 100-day MA is around $960, and if the stock price can break through this line, it is expected to climb back above $1,000. The stock’s 50-day MA is around $1,050 and could represent the next level of resistance in a rising market.
Tesla is scheduled to report fourth-quarter earnings after the bell on Wednesday in the U.S., which is expected to stem the recent wave of selling. Analysts expect Tesla to trade at around $2.30 in EPS, with the highest EPS valuation at nearly $3. Anything close to that will boost the stock price.
Tesla’s growth is fast and strong, so comparisons to last year’s fourth quarter are insignificant, and investors are likely to pay close attention to the EPS of $1.86 in the most recent third quarter.
