Tesla (TSLA) 2/11/2017 – “Conservative” $400 Price Target
The car company Tesla (TSLA) is more like a cult than a car company. Its fan base can be compared with that of Apple (AAPL). Both companies have a very loyal following. The same can be said about their stock.
However, there is one stark contrast between the 2 companies - their P/E ratios for their share price. Apple's P/E ratio is a conservative 15.5 while Tesla's is -39. Yes, that's a negative sign in front of Tesla's ratio. You are buying TSLA stock on big expectations and thats about it. Tesla relies on secondary stock offerings to raise additional capital as they are not cash flow positive.
However, like 95% of the articles I write, this article focuses purely on technical analysis and not the fundamentals. But from a personal standpoint, I would much rather own a company whose share price can be supported by revenue, earnings, etc. With that being said, let's review some charts for Tesla for those that want to cash in on its uptrend that is brewing...
Tesla (TSLA) - Point & Figure Chart
As one Trendy Stock Charts member pointed out in the Idea Chamber, the P&F Charts for TSLA have a $400+ current price target for its share price. He asked what the heck was going on. First, let's take a look at that P&F Chart with the $400+ price target. When you look in the upper left corner of the chart, you will see the bullish price objective at $445 for TSLA's current Point & Figure pattern.
TSLA's share price has also formed a double top on the above chart. A print of $272 is required to confirm a breakout from the Point & Figure double top.
If you look at the left or right side of the P&F Chart, you will notice each box represents $4 once the share price is above the $200 price level. What that simply means is that the chart doesn't even get updated until TSLA's share price has moved $4 or more from the current box amount. You can learn more about P&F Charting here.
P&F Charts are used by long-term investors since they help to eliminate the short-term "noise" of small price fluctuations.
TSLA - 5 Year Chart
So let's start some other chart review and see if a $445 price objective can be calculated using other technical analysis methods.
This is a 5 year monthly candlestick chart. First off, the maximum downside risk appears to be the support area from the Hammer candlestick pattern that is illustrated on the chart. That support area for TSLA's share price is around the $178 level. That is an important area to know about in case the market turns sour and everything starts going bad.
Where is my maximum pain level? That is a question you need to ask yourself for every trade you enter. For TSLA nd the current trade, that level appears to be the $178 area. I don't expect a re-test of that area any time soon though based on the current price and volume action.
Here are the bullish factors that I want to point out on the chart. First off, the maximum pain level is not only supported by the Hammer candlestick pattern, but over a period of 2 years there are 3 monthly candlesticks with support all in the same area. That is a strong confluence of support. That multi-year bottoming process could lead to a sustained breakout for TSLA's share price. The longer the consolidation period, the stronger the breakout (typically). And with the confluence of bullish candlestick patterns all providing support in the same area, your downside risk can be accurately measured.
Next, the MACD Histogram on this 5 year monthly chart is starting to reflect increasing buying volume. This is probably just the beginning of a longer trend to continue for several more months. Especially since TSLA has also seen an increase in total buying volume over the last 2 months in addition to just the increased buying momentum.
When the actual buying volume and the buying momentum are in alignment like they are, it typically means the trend is continuing and that means still higher share prices.
If Tesla's share price breaks through the overhead resistance trendline by the end of the month and the trend of increasing buying volume and buying momentum both continue to increase, look for a pullback, make a scale-in purchase, and join the trade. It will be important that the market also continues its uptrend during the breakout period. Keep an eye on the NASDAQ Composite charts too.
TSLA - Upside Price Targets
This is the same 5 year monthly candlestick chart where I removed the MACD Histogram and compressed the candlesticks so some of the upper Target Lines from the Fibonacci Extension Tools could be viewed.
The price target when using a Fibonacci Extension Tool should be taken from the 100% Target Line at first. However, most share prices that are trending tend to reach for their Golden Ratio or the 161.8% Target Line.
Even though I typically look to the 161.8% Target Line first, the 100% Target Line usually offers a decent trading opportunity or 2 before the next leg up to the 161.8% Target Line. The 161.8% Target Line resides at the $571.28 price level. This far surpasses the $445 price target calculated by the P&F Chart above.
Why does this time look like a breakout? The increasing buying volume. Look at the attempted breakout after the first Bullish Engulfing candlestick pattern developed. The buying volume was decreasing as the share price was increasing. Not a good sign for a breakout. Now look at the current volume.
With earnings currently scheduled for February 22 after the market close, TSLA's monthly chart still has plenty of time for February's buying volume to pick up. A well received earnings report and TSLA's share price could be off to the races. Any earnings disappointment which results in a pullback to the green supporting trendline could be an awesome opportunity to make a scale-in purchase to go long.
Now let's review some shorter-term charts to try to determine less risky areas to enter the Tesla (TSLA) trade using a couple of different technical analysis methods. Hopefully there will be some agreement between methods which can help to lend confidence to the trade.
TSLA - Fibonacci Fan Tool
The Fibonacci Fan Tool can be used to look for entry points to go long. I like to place the tool on a chart after a stock appears to have started a consolidation period or a correction. I've also placed a Retracement Tool on this 5 year chart. I switched from monthly candlesticks to weekly candlesticks to get a little more details for the uptrends and pullbacks.
Notice how TSLA's share price just broke above a high from its April 2016 uptrend? That is a technical indicator which I use to watch and purchase the next pullback. Once TSLA's share price breaks above the resistance from its previous all-time high, there is no more overhead resistance. When there is less resistance, share prices tend to move at a quicker pace upwards.
The Fibonacci Retracement Tool saw a 50% and almost a 61.8% Retracement from its Bullish Impulse wave pattern. The corrective waves, Waves A, B & C formed a very symmetrical Zig-Zag wave pattern. For the uptrend and correction, TSLA completed an 8 wave cycle on a large scale over a 3 year period. The uptrend, in general, lasted a little over a year and a half. That sort of information should be considered for the current uptrend.
As I illustrate on the Fibonacci Fan Tool's webpage, the best areas to purchase shares and go long are on breaks below the Lower Quadrant of the Fan Tool. The break below with a combined 50% Retracement signaled the most opportune time to go long. But there is nothing wrong with letting the downtrend show it is over with a strong rebound and then buying the pullback. Actually, having patience and watching the chart set-up for an upside move helps to eliminate some of the downside risk by confirming some downside support areas.
The MACD Histogram continues to show increasing buying momentum, even though that momentum appears almost ready to start slowing down a little based on the rounded out top. Anyone looking to go long TSLA shares can only hope that this momentum does slow short-term and allow a pullback before its upcoming earnings report. However, with a MACD Histogram that is just starting to show buying momentum on its monthly candlestick chart, any pullbacks will probably not be of more than 10%.
TSLA - Trendlines
This next chart is a 3 year daily candlestick chart for Tesla (TSLA). It has supporting and resistance trendlines, as well as gap-ups and downs all illustrated. TSLA's share price has 2 opened windows (gap-ups) from Rising Window candlestick patterns that developed in its current uptrend. Looking back at this 3 year daily chart shows that TSLA has a long history of leaving gaps, both up and down.
Overall buying volume is trending downwards but the MACD Histogram is just starting to show buying momentum again. If TSLA's share price continues its run into earnings, the buying opportunity would most likely be after earnings. However if TSLA's share price pulls back 10% before earnings, that could be the time to make an initial scale-in purchase.
A pullback to the $250ish area where TSLA's share price had a quick consolidation period during the current uptrend would be a nice spot to make an initial scale-in purchase. That would mean closing the gap-up that just developed on 2/9/2017. Unless the MACD Histogram shows a decrease in buying momentum next week, that does not look likely. Here is a 1 year daily chart to zoom in on the current uptrend. The 2 gray boxes are areas where a scale-in purchase makes the most sense.
Remember that using a scale-in and scale-out strategy helps investors to be more fluid and invest more when the trend is strong and pullback when the trend starts to weaken. It never has to be an "all-in" or "all-out" strategy. It is all about positioning as one Trendy Stock Charts member pointed out in the Idea Chamber.
TSLA - Moving Averages
This last chart will zoom in a little further. It is a 1 year daily candlestick chart to analyze TSLA's share price activity using moving averages to see what kind of story they tell us.
The first and most interesting item is the recent development of TSLA's Golden Cross pattern.
Waiting for a pullback to the 200 Day moving average after the development of a Golden Cross is usually preferred. But making a scale-in purchase at a pullback to the 50 Day moving average may be more appropriate if TSLA is going to truly breakout. True breakouts don't involve deep pullbacks. Deep is usually defined as 10% or more.
However TSLA's 200 Day moving average will probably start turning up shortly due to its recent uptrend. By the time earnings are announced, the 200 Day moving average could be as high as the $220 area. That would then support the lower gray shaded box on the 1 year chart above.
Tesla (TSLA) - Summary
In summary, there are a lot of bullish indicators going on for Tesla (TSLA). The $445 price target from the P&F Chart seems to be supported with other technical analysis methods. If your investing time frame can be counted in years instead of months, TSLA could be a stock that adds some nice returns over that time period.
Don't be alarmed of some volatility though. You can see in TSLA's past it has a history of leaving a lot of gaps. But holding out through the volatility could get you to my "conservative" price target of $400. This "conservative" price target for Tesla (TSLA) could be the beginning of a much larger, measured move. Possibly up to the Golden Ratio for the long-term uptrend. That area was calculated to be the $571.28 price target, as illustrated by the black 161.8% Target Line from the Fibonacci Extension Tool .
But since Tesla (TSLA) is nothing more than a pure technical trade/investment, be certain to monitor the appropriate technical indicators. You don't want to be holding the bag on a company that has a high cash burn rate and no earnings when the momentum ends. One such indicator would be the MACD Histogram on the monthly chart. If you are not familiar with the readings of a MACD Histogram, read up on the indicator here.
So do you want in to TSLA's cult? If so, follow the blueprint laid out above. It may also help to learn the secret handshake for Tesla owners. Part of that handshake involves buying on a pullback to the 50 Day.
Good luck trading and as always ask for updates below or in the Idea Chamber.