Luxury electric vehicle maker Tesla Motors (Nasdaq: TSLA) failed to wow investors when it reported first-quarter results last week. A sell-off followed that took the stock down to a technically critical level.
In February, TSLA rallied on the back of news that the company is planning to build a so-called Gigafactory to achieve economies of scale in battery production. According to the company, The Gigafactory "is designed to reduce cell costs much faster than the status quo and, by 2020, produce more lithium-ion batteries annually than were produced worldwide in 2013."
TSLA fully retraced this rally in ensuing weeks, but many analysts seemed focused on the Gigafactory's progress during last week's conference call. CEO Elon Musk said that plans for the factory are on track and that the company will break ground on the first two projects in June. Musk also said that Panasonic, a well-known battery supplier, will be a partner in the venture.
With all this positive news, why did the stock sell off to the tune of 11% on Thursday?
It's possible some analysts were disappointed with the company's outlook. It's also possible that a few large investors decided the intermediate-term prospects for the stock have somewhat leveled out, and that along with other momentum stocks, it should be sold to raise cash, take profits or make room for other opportunities.
But taking a look at the charts, I see a bullish opportunity setting up.
On the 12-month chart, we see that with the sharp 30% correction over the past two and a half months, TSLA has essentially mean-reverted back to its early 2013 uptrend (red) line. Importantly, this is a confluence support area, as it coincides with the 200-day simple moving average (blue line). In other words, for the medium term, it's easy to label this area as a make-or-break level for TSLA.
On the next chart, note that after rejecting lateral resistance earlier last week (red line), Thursday's selling took the stock below its 100-day moving average (upper blue line) and right to its 200-day (lower blue line).
Given the confluence area that TSLA has arrived at, it could be ripe for at least a little short-term bounce before heading lower again toward better support near the $150 area.
Action to Take -->
-- Buy TSLA at the market price
-- Set stop-loss at $175, just below Friday's intraday lows
-- Set initial price target at $194 for a potential 5% gain in two weeks
This article was originally published at ProfitableTrading.com:
Tesla at a Make-or-Break Level -- Buy or Sell?