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Short-Sale Set Up - Tesla Motors (TSLA)

Published : October 30 2016 at 20:07 ET

Tesla Motors (TSLA) announced earnings on Wednesday of this past week, sending the stock gapping up to its 200-day/40-week moving averages. The stock then reversed on heavy volume and is now just below the $200 price level and its 50-day/10-week moving averages.

On the weekly chart, below, we can see that the stock has been forming a large "mountain range" type of topping formation that has the look of a very busy, complex, and extended head and shoulders formation over the past three years, roughly.

With the stock sitting about 2.5% below its 50-day (on the daily chart) moving average and about 1% below its 10-week (on the weekly chart) moving average, it is in an actionable short-sale position using either the 50-day/10-week lines at 205.20/202.23 as guides for tight upside stops. Alternatively, one could give this more room by using the 200-day/40-week moving averages at 212.34/212.81 as guides for a slightly wider upside stop.

TSLA long ago lost its upside price momentum, and since early 2014 has merely moved back and forth within a wide, "mountainous" range. As the reality of the true profitability of its business slowly emerges, it is likely to eventually be valued more in line with any other auto manufacturer. In fact, if we look at current U.S. auto sales reported on October 3rd, we can see that TSLA's vehicles don't even rank in the top 20. 

 

TSLA delivered 24,821 cars in the third quarter of 2016. At that rate, even by the end of the year, it won't even surpass the year-to-date sales of the Subaru Outback, the last-place finisher in the list above. Much was made of TSLA reporting "free cash flow" of $176 million, but this was achieved by accounting sleight of hand, whereby the company allowed accounts payable to increased from $1.1 billion last quarter to $2.3 billion in the most recent reported quarter. So the much ballyhooed increase in TSLA's Q3 free cash flow was achieved by the simple act of not paying its bills!

If TSLA is going to somehow grow into its valuation and avoid being lumped in with a stock industry sector that typically sees established names like F or GM selling at 5-6 times forward earnings estimates, it has its work cut out for it. So far, the price/volume action of the stock appears to argue against this. Thursday's price reaction and reversal showed that investors weren't snowed by the phony free cash flow numbers. We would not be surprised to see the stock eventually test the 141.05 low of February over time.

Of course, longer term, TSLA is working on a number of potentially ground breaking technologies which, if realized, could make a material difference to its bottom line. But that is for the future which does not exist. What matters is price/volume action in the present. And at present, the stock is telegraphing troublesome signs. 


This information is provided by MoKa Investors, LLC DBA Virtue of Selfish Investing (VoSI) is issued solely for informational purposes and does not constitute an offer to sell or a solicitation of an offer to buy securities. Information contained herein is based on sources which we believe to be reliable but is not guaranteed by us as being accurate and does not purport to be a complete statement or summary of available data. VoSI reports are intended to alert VoSI members to technical developments in certain securities that may or may not be actionable, only, and are not intended as recommendations. Past performance is not a guarantee, nor is it necessarily indicative, of future results. Opinions expressed herein are statements of our judgment as of the publication date and are subject to change without notice. Entities including but not limited to VoSI, its members, officers, directors, employees, customers, agents, and affiliates may have a position, long or short, in the securities referred to herein, and/or other related securities, and may increase or decrease such position or take a contra position. Additional information is available upon written request. This publication is for clients of Virtue of Selfish Investing. Reproduction without written permission is strictly prohibited and will be prosecuted to the full extent of the law. ©2017 MoKa Investors, LLC DBA Virtue of Selfish Investing. All rights reserved.