Using Technicals to measure TSLA market fatigueI've never charted TSLA using my relatively new charting skills so I thought I'd check it out. Remarkably, charting Tesla reveals a lot of predictable price action.
First thing that's noticeable about Tesla is that despite growing losses and a lack of profitability Tesla has remained more or less in a bullish channel since the beginning. Despite a great deal of volatility there's been an extreme level of support that's more or less allowed the stock to continue increasing in value despite relatively poor results.
However, noticeably, starting Sept 2014 TSLA began a negative trend within the larger positive channel that ended with the Trump rally following the election in Nov 2016. That rally peaked in mid to late June 2017 and the market has been in a descending channel since then. This descending channel differs from the 2014 one in being newer (obviously) with the market yet to trade into the lower half of the channel. Notably, during the 2014 to 2016 negative trend the market mostly stayed within the upper half of the channel which indicates the faith of core TSLA shareholders. During that time, TSLA was still "new" and "fresh", allowing optimism to overrule skepticism.
Now, in 2018, we're starting to see signs again of skepticism creeping into the market. At the peak, 1 W and 1 M (month) RSI divergence was signaling. These are major sell signals and in the case of the 1 M signal it took nearly 4 years for the signal to occur beginning with a RSI peak in June 2013 followed by a subsequently lower RSI peak 4 years later in June 2017. Looking at 1 W signals it's clear that divergence signals were followed by periods of consolidation but the cycle for Tesla clearly looks far into the future, allowing each period of draw downs to be followed by buyers attracted to cheap shares. TSLA price bounced hard right as 1 W RSI hit just above 30, indicating the strength of TSLA in the market.
Now, with price having dipped about $100 off the peak with clear 1 M divergence signaled we can get a better sense of the market fatigue from TSLA based on technicals as well as fundamentals. The recent dip followed reports that the Model 3 continues at a low production level, likely because TSLA can't sell them for $35,000 at a profit (which is what Elon Musk more or less said himself) but at nearly $80k they can produce them profitably. When combined with the absurd 6-9 month wait for a vehicle and announcements from BMW of a Model 3 beating model slated for the 2020 model year the market seems to be very clearly reaching a breaking point in its "faith" that TSLA will ever be profitable or will even "survive" as Elon Musk put it (more or less - don't remember the ask phrasing).
Elon Musk is clearly aware that Tesla is at risk of losing too much money too quickly that they cannot continue to operate. Overall cash flow has become a major concern for them and they are running out of gimmicks to pull, i.e. like the Boring Company, or announcing the Roadster and the Semi to crowdfund their operating cash. At some point soon, they will need to actually make money or the market will turn against them.
These things all appear to be signaled by the price action over the last 4 years. Beginning in 2014 the market began to fatigue and price fluctuated significantly but failed to break that much higher. Then the Trump rally boosted the stock market all across the board. As 1 M RSI divergence was signaled the market started taking profit but an expectation of the Model 3's production ramp up allowed price to stay up through early 2018 but as the Model 3 repeatedly failed to reach the target production capacity as promised/expected, we saw about 3 tests of the upper channel line by the market followed by a sharp drop off as the market began to price in failure.
Given the current price level near the middle of this descending channel and the market yet to test the bottom of the channel and 1 M RSI divergence, shorting/buying puts on TSLA looks promising.
