Tesla’s Chart May Be The Earliest Indicator Of The Company’s Success Or Failure

By: Wayne Duggan

With the dozens of potentially world-changing headlines that Tesla Motors Inc (NASDAQ: TSLA) seems to be making all the time, it seems like the company is growing at a breakneck speed. That’s one of the reasons why it’s hard to believe that Tesla’s stock has gone virtually nowhere in nearly three years.

The Calm Before The Storm

This week, Tesla announced that it plans to deliver the first fully automated vehicle trip across the U.S. by the end of 2017. Between automated vehicle technology, mass production of the Model 3, and the potential acquisition of SolarCity Corp (NASDAQ: SCTY), it seems unlikely that Tesla’s stock will continue going nowhere for much longer.

If Tesla delivers on its ambitious goals, the stock will likely deliver a spectacular upside breakout within the next couple of years. However, if the company runs into delays, financial troubles, regulatory roadblocks or technical issues, the stock’s lofty valuation will likely come crashing back down to earth.

Going Nowhere Fast

Following the autonomous vehicle hardware announcement this week, skeptical traders drove Tesla shares back down to just under $200.

Tesla was trading below $40/share in early 2013, but it first penetrated $200 roughly a year later.

After its meteoric 2013 rise, the stock has endured more than 2.5 years of an extremely volatile extended consolidation period. Aside from a false downside breakout in early 2016, Tesla has traded mostly between $180 and $290 since the beginning of 2014.

In that time, the stock has made four trips up to the $265-$290 range and four trips down to the $177-$187 range, not including the brief 2016 dip to $141.

Levels To Watch

With its extraordinary cash burn and wildly ambitious technology and production goals, something is going to give with Tesla one way or another in the next couple of years. Technical traders know that the market tends to sniff out major fundamental developments long before they are reported in the media. For Tesla traders, the next breakout above $290 could be a sign that another 2013-like jump in Tesla’s share price is on the way.

However, if Tesla’s stock dips back below $180, there is very little resistance down to around $40. The stock’s 2016 low of $141 would be the first level to watch, and the stock’s late 2013 low of $116 would be the next. Any way you look at it, a drop below $180 likely means negative headlines ahead for the company and lower share prices ahead for traders.

Disclosure: the author holds no position in the stocks mentioned.

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