My gut feeling is that Tesla shares have seen their highs for a long while. Usually I let the charts do the talking, but in this case I’ve jumped the gun to sketch out a bearish head-and-shoulders pattern as it might develop over the next 15-20 months (see inset). This is just speculation, of course, but it’s not farfetched to “see” a left shoulder and head already in place on the weekly chart. Although the SEC is likely to rough up CEO Elon Musk for his ill-considered tweet about taking the company private, legal troubles will probably be the least of his problems. He has flatly asserted the company will be profitable from this point forward, but it’s hard to take him seriously, since there are reportedly serious design flaws and manufacturing problems besetting Model 3.
The Upside of Failure
Tesla sales are down in Europe and likely to fall further as formidable competitors such as Jaguar, Mercedes Benz and BMW enter the market for cars powered by electric motors. Musk could pull a rabbit out of the hat with some startling development in battery storage, but that is not an odds-on bet either. It doesn’t help that, from a financial perspective, the automaker has been skirting bankruptcy.
If the head-and-shoulders pattern plays out as sketched, the stock is headed below $200, well beneath the recently revised price targets of some high-profile analysts. Tesla fans shouldn’t despair, however, since a collapse in the share price would force Musk to get his formidable mind back on the basics rather than on the stock’s ups and downs. Somewhat removed from the limelight, he would have the breathing room to do what he had started out to do — i.e., sell enough expensive cars to generate the cash needed to produce a true mass-market vehicle. ______ UPDATE (October 25, 9:56 p.m.): When Musk promised no more losses in announcing punk earnings three months ago, we shouldn’t have doubted him, since a company’s bottom line is an accounting fiction that can be pegged anywhere the directors want it. As things stand, the Q3 profit announced by Tesla earlier this week is having a predictable effect on the stock, easily among the most brazenly manipulated in the sordid history of securities exchanges. Look for a test of record highs near $390 if buyers can push past the 327.32 ‘external’ peak shown in this chart._______ UPDATE (Nov 12, 8:40 p.m.): TSLA has plunged from a recent high at 357.58 that missed exceeding an ‘external’ peak at 363.19 in August. This has put a lid on the rally while lowering the odds of the move to $390 that I’d told you to expect. The selloff targets 321.04, but a breach of the Hidden Pivot support would be quite bearish._______ UPDATE (Nov 13, 6:07 p.m.): Today’s histrionics raised the target somewhat, to 325.54. Here’s a chart that shows where you might attempt very tightly stopped bottom-fishing._______ UPDATE (Nov 14): I’m removing this lunatic stock from the front page because tracking it isn’t worth all the hard work. I’d rather not have to think about TSLA — so sayonara!