Losing Faith (and Money) in Tesla (TSLA)

We’re not so impressed with the smarmier types in the newsletter business. Those who constantly flatter their readers, tell them what they want to hear and overcharge for their less than capable services.

Here, at Normandy we’re all about ruffling feathers, telling it like it is even when it makes you yell to the heavens that we’re louts and dandies and oughta be shackled and keel-hauled before setting the dogs upon us.

And so be it.

We relish our role as outsider.

In fact, the team at Normandy is experienced enough and confident enough to weather all your bally-hoos and curses and smile like Riley through the spittle. Alas, if we could only do something about your breath….

farrah
That said, we have an idea that’s likely going to shake up the anger in quite a few of you, not least because you’re angry people to begin with (and how that costs you money in the end, dear friends, you cannot imagine). But also because you’ve grown too fond of your pet stocks – too attached to a few lovey-dovey issues in the marketplace, and we can’t afford to do that, people – no, no, no. Not if we’re serious about this game.

So, here we go.

Buckle up and listen to the takedown of a company that might have a future and might not, but whose stock looks about ready to give up the ghost – Tesla Motors (NASDAQ:TSLA).

Them again?!

 

Durn right.

We’ve toyed with this dinky car maker for well over a year now, pulling in profits from a number of trades that went remarkably well, and today we reveal the setup for yet another.

We’ll start with the daily chart for the last year.

Have a look –

tsla124
Most prominent here is the six month head and shoulders top that appears today to be nearing completion (in blue). Should TSLA break below $220 intraday, the formation’s neckline (in red) will have been severed, and we’ll have an open technical call to sell Tesla stock outright, with a downside count that could bring her to settle in the $140 range before the decline is complete.

Today, TSLA opens at $229.30, some 4% above that doomsday level.

The likelihood of a selloff, of course, will be even greater if we see a close today below $220.

We’ll have to wait and see.

What? That’s it? That’s all you got?
That’s no smoking gun…

 

Unfortunately, there’s more.

A glance at the weekly chart reveals that Tesla’s also in trouble over the longer term.

Have a gander –

tsla1242
After nearly two months struggling to remain above a two year rising trendline, Tesla stock fell off the wagon last week (in green). With that move, TSLA enters the freefall arena on the weekly chart, precisely as the weekly RSI reading submerges below her waterline (blue box) and interest in the Tesla trade weakens altogether, as seen from fast-diminishing volume figures for the stock.

It’s not a great surprise, really, when you consider that both RSI and MACD indicators have been diverging lower against Tesla’s share price for the last fourteen months (black lines). The question was never ‘if’, but when the ultimate break would come.

And we believe it’s now.

She’s Not Alone

 

Tesla’s not the only high flier in the market whose shares look vulnerable. A great many new momentum issues as well as some older, rusty types are showing signs of cracking amid what we’ve said for several weeks now looks like a creeping rollover top.

Stocks like McDonalds (NYSE:MCD), Caterpillar (NYSE:CAT), WalMart (NYSE:WMT) and IBM (NYSE:IBM) are all on the verge, to name just four.

But Tesla’s weakness is not only technical. She has fundamental issues, too.

• The first is a broad swath of dilettantish shareholders who can’t be relied upon to hold their shares tight through any pullback.

• And considering Daimler Benz’s recent divestiture from the stock, why shouldn’t mom and pop fold ‘em, too.

• BMW also indicated that informal talks regarding cooperation with TSLA have come to an end.

• Problems meeting demand have also got some worried about whether potential buyers of Tesla’s Model S Roadster will just turn elsewhere rather than wait for the next shipment.

plug

Yup.

We’d look at 1) a longer-term short sale, or 2) the purchase of long range PUTs against the sale of a nearer term bearish CALL spread.

Many happy returns,

Matt McAbby, Senior Analyst, Normandy Research

See what people are saying...

  1. david lynch

    Have driven the Tesla, it is exceptional

    • John Samuels

      How is the new Twin Peaks coming David?

  2. Garry Roth

    Sounds like they make a great car, but the stock is simply way too expensive in comparison to actual earnings. Agree with you on the expected significant decline.

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