Tesla Weekly Analysis: Bears gain fresh strength below the $700 level.
It never rains it pours for Tesla. Maybe that is the price you have to pay for being a market disrupter and for making your boss the richest man in the world. The higher the monkey climbs the more of its derriere it shows, and Musk is pre-empting being the new target for political reasons as he pursues his personal ambitions. The recent drop in share price is just a ripple on the chart when considering where the share price was in 2019. The market context though is very bearish, and these leading stocks are very overvalued according to some market participants. It will be interesting to see if the famous shorts which include Bill Gates will be won over with a larger price drop.
Weekly Investment Idea
Last Friday, Tesla's share price dropped by -6.42% as bears breached $700. Shares of the company were dragged down by a massive sell-off in global stocks following Fed Chair Powell's announcement of aggressive monetary policy tightening in an attempt to lower inflation. At its policy meeting in June and July, the Fed is expected to hike rates by 50 basis points due to worries about inflation.
Last week Tesla was kicked out of the S&P500’s ESG Index, due to the companies, "lack of a low-carbon strategy" and "codes of business conduct," along with racism and poor working conditions reported at Tesla's factory in Fremont, California. Tesla’s CEO and Fres Speech advocate called the ESG metrics, the “Devil Incarnate”, as it turns out the S&G may have more weight than the E, in ESG, as oil and gas multinational Exxon Mobil is still included in the list.
As a result of its removal from the S&P 500 ESG Index on Thursday, Tesla lost about $66 billion of its stock market value on Friday, opening up downside pressure for the company. On Friday, Nasdaq dropped -3.41% as the bears gained momentum below the 12200 level, a 17-month low, indicating a general bearish sentiment in tech stocks.
An increasing number of lawsuits continue to pose a major obstacle to Tesla's success as the controversy surrounding Elon Musk, casts a dark shadow over the company. Meanwhile, Tesla is facing supply chain issues, which could lead to a suspension of orders on some vehicles in the near future.
Tesla is also negatively affected by the recent cryptocurrency collapse due to its exposure to Bitcoin. Bitcoin's value decreased by 24.70% in May, and bears are could be targeting as low as the $20000 support in the near future.
Nevertheless, Q1 earnings grew from an estimated 2.26 to 3.22 which indicates a huge +42.63% positive outlook. In addition, basic earnings per share grew from 2.29 to 3.20 for an increase of +40.12%. The Tesla balance sheet still indicates a strong resilience in a bearish market, despite the drop in the price-to-earnings ratio from 146.22 to 96.26. The company's next earnings release is scheduled for the 27th of July 2022 (Q2 results).
The Fed meeting minutes this Wednesday will be scrutinized by investors for clues about the Fed's policy tightening review, at a time when inflation is peaking. Chairman Powell said the Fed is ready to tighten its policy to achieve price stability, with expectations around a 50 bssis point increase for the next two meetings.
Data on US Personal Income and Spending ( Core PCE price index) will also be released this Friday. The survey suggests better than expected spending despite soaring inflation in April and this is the inflation report the Fed watch closest.
TSLA Weekly Chart
Tesla (TSLA) broke below the 700 support, a level last traded in August 2021 with a close at 663.9. The breakout to the downside is reinforced by the Bollinger Band (20). Price closed outside of the lower Bollinger Band and has the potential to trade lower towards the 550 support, coinciding with the 18-month low if price fails to reclaim the 700 level. The MACD indicator shows a trend shift towards a bearish outlook as the volume reading turns increasingly negative. A cross-over of the MACD moving averages below zero may reinforce the bearish sentiment in the near term. However, if bulls manage to reclaim the 700 level upside gains remain capped by the 7800 level and 900 level coinciding with the Bollinger Band baseline (yellow moving average).
TSLA Daily Chart
Tesla stock plunged more than -6% making a fresh low at 638.00 after breaching the 700 level. The trend is capped by a bearish outlook as indicated by the RSI reading far below the 50.00 level. The current trend hasn’t reached exhaustion and the possibility to trade lower is elevated since the sentiment is not yet extremely bearish. Upside gains are capped by the Williams Alligator indicator which is used as a dynamic resistance by professional traders. A break above the 900 level may signal trend change and an area that may attract bulls’ participation once again.