TSLA Approaches Major Resistance and May Stall into July 21
Aggiornato
Primary Chart: TSLA on Weekly Time Frame with a Downtrend Line from the All-Time High and Fibonacci and Measured-Move Levels
Preliminary Comments
TSLA is poised to stall soon, perhaps into July 21. By definition, a stall does not necessitate a crash or major trend reversal (at the primary degree of trend). A major reversal downward (crash) is always possible especially once shorts have been decimated—major downward reversals seem to always wait for clearing out of hedging and shorts, right?
Although a major trend reversal could occur here given major resistance levels just overhead on higher time frames, no one has a crystal ball. Finding the time and price components of such a major reversal can be exceedingly difficult (note the conclusion section of this article about probabilities).
And no one who were to have a crystal ball that worked properly would share it. And a securities regulator would be sniffing around for insider trading for sure with too many trades lining up too perfectly especially before major news catalysts. Humor aside, trying to be too clever by calling the exact top is a misplaced endeavor. But it can be prudent to analyze the charts and consider the idea of vulnerability for a trend’s continuation in the short-to-intermediate term, i.e., whether the move might encounter major resistance that could at a minimum cause a mean reversion or retracement of the recent rally.
Trend Analysis
The charts don’t lie. TSLA’s intermediate-term trend since January 6, 2023 remains upward. Similarly, short-term (2-6 weeks) and intraday trends remain upward. But the primary trend is still arguably sideways when considered over a 2-3 year period, while the secular trend since 2010 arguably still remains firmly upward.
1. Secular trend (since 2010): uptrend
2. Primary trend (since 2020/2021): sideways trend (range)
3. Intermediate / secondary trend (since early 2023): uptrend
4. short-term trend: uptrend near crucial resistance
5. intraday trends: uptrend near crucial resistance
Supplementary Chart A: Primary Trend
Supplementary Chart B: Secular Trend
The intermediate term trend has run fast and furious for 1H 2023 (since the Jan. 6, 2023 low). That alone is not enough to expect a reversal. Shorting something merely because it seems to have risen too far is a well-known trading mistake comparable to catching a falling knife in a downtrend. Shorting powerful uptrends is not an easy way to make a living.
But several charts suggest vulnerability for TSLA’s rally at this level. This comes right as earning will be reported this week along with a major monthly options expiration on July 21. Earnings reports like TSLA's upcoming one present a binary risk event that could stretch prices significantly in either direction, or it could a whipsaw price in both directions before settling on a final directional move (see the section below titled “Trend vs. Fundamentals.”)
Supplementary Chart C shows that TSLA’s price is nearing a crucial Fibonacci level on a linear chart. This is the 61.8% Fibonacci retracement ($299.05) of its entire decline from its all-time high into the early January 2023 low. Coincidentally, this level shows confluence with other important resistance levels shown on the chart such as the down trendline from the all-time high. (Some prefer Fibonacci levels adjusted for a logarithmic chart, which is not shown. The next relevant upside Fibonacci level on a log chart, however, is the .786 of the entire decline at $306, which is not far from the .618 level at 295.05.
Supplementary Chart C
If the .618 Fibonacci retracement is overcome and held (not just a false breakout), this suggests prices may run higher to at least $314.67 or the next higher Fibonacci level at $347. But these are upside levels conditioned solely on the .618 retracement being overcome and held.
Next, consider the down trendline from TSLA's all-time high. This is being approached at around $300, right were significant call OI exists. Trendlines can be somewhat rigid measures of trend, but they can provide some value especially when other support / resistance levels coincide with the trendline. The down trendline from TSLA's all-time high runs right into the measured-move zone, shown by the blue circle on Supplementary Chart D.1.
Supplementary Chart D.1
Some traders prefer to look only at logarithmic charts, though here it doesn't add much to the technical picture since the trendline is quite close to where it lies on the linear chart.
Supplementary Chart D.2
Finally, some bearish divergences in momentum and price/volume indicators suggest that price has become quite stretched right at a time when TSLA has reached some major resistance levels. Supplementary Chart E shows the Elder Force Index (EFI), a useful indicator that displays a combination of volume and price, weighing the extent of each price change along with the extent of volume. It tends to pick up divergences in the "force" or commitment behind a move with more sensitivity than RSI or other common momentum indicators, but with increased sensitivity often comes more noise (more false signals) which can be helped to some extent through indicator adjustment. Nevertheless, here is what that indicator shows for TSLA on the daily timeframe:
Supplementary Chart E
As TSLA has made higher highs, it has done so with less force and commitment for each high, creating a divergence between higher price highs and lower EFI highs. TSLA may make a new YTD high this week, and if so, it will be important to see where the EFI high prints for that new high. Given how low EFI is currently, it would take a lot of volume and price change to move the high to exceed the prior EFIs (erasing the divergence). In SquishTrade's view, EFI is unlikely to erase both the June EFI high and the January EFI high even if TSLA runs to $300-$320 post earnings.
Supplementary Chart F shows RSI and ROC, two common momentum indicators which most readers understand well. ROC shows a series of three highs that each make a successively lower high while price made higher highs at the same time: January 2023, June 2023, and July 2023. RSI only shows a series of two highs where price made a higher high and RSI made a lower high.
Supplementary Chart F
Downside Targets
TSLA's price seems poised to pullback / retrace at a minimum. But referring to downside targets may seem a bit premature as price hasn't confirmed even a short-term reversal or the start of a retracement / consolidation within the intermediate trend yet. The technical conditions for a retracement are present, so if confirmation lower does occur in the next week or so, price can fall to trend support, however one decides to measure that within one's trading system.
Based on persistently and deeply inverted yield curves, many astute market players may be looking for more than just a retracement or consolidation within the intermediate uptrend. They want more than mean reversion, and that is understandable. Should TSLA followers expect that now? Today, July 15, 2023, confidence cannot exist about an impending trend reversal on higher time frames. Why? A major reversal where price retests / breaks January 2023 lows will likely coincide with recessionary economic data (e.g., rising UE rates), drastically changing EPS estimates based on disappointing earnings reports, and/or unexpectedly high interest rates across the curve because of sticky inflation won't budge further downward (the recent CPI print came in at 3% for headline but 4.8% for core for June 2023). Note: Fundamentals are discussed in greater depth in the next section below. But economic data has continued to come in better than expected. Recent real GDP print for Q1 2023 was recently raised to 2% and labor markets remain persistently tight as the Fed even has noted in its recent pressers. Inflation has cooled for June but this may result from basing effects.
Most importantly, trend structure on the weekly and daily time frames (intermediate and short-term) has not been broken. Until the intermediate trend structure is decisively broken, forecasting a major top / trend reversal is rash and unfounded from a technical viewpoint. This intermediate-term trend structure is the up trendline from January 2023 lows or some other more dynamic or flexible measures of trend.
So with the idea that price can run a bit higher before any retracement—since we haven't yet seen a confirmation lower yet—these downside targets remain conditioned on a short-term trend reversal. For now, the targets also must be considered corrective retracements / mean-reversion targets within the context of the current trend until the evidence proves otherwise.
Conservative Target: $245-$250
Moderate Target: $232-$238
Aggressive Target: $199-$218
Trends vs. Fundamentals
A purely technical analyst or technically oriented trend trader tends to consider only the trend and technical evidence supporting that objective. At critical junctures after retracements / corrective moves, this means favoring trend continuation rather than a reversal until the evidence says otherwise. And pure trend following means seeing the odds as favoring mean reversion when a trend gets too extended or stretched rather than reversal.
Ambiguity as to trend on varying time frames often confounds the discussion of trends. This is why it's important to remain precise and focused on time frames. For example, a long term secular trend in a given index can be upward while a primary trend can be downward or sideways (retracing / consolidating within the secular uptrend) while an intermediate trend can be upward (retracing or consolidating the primary downtrend)—and intraday traders levered up on calls and riding the short-term rip may be so hyperfocused on a rip in the short term that they dismiss a long-term analyst’s accurate characterization of corrective rally within a primary downtrend. This is just a hypothetical example of how vagueness around terminology and time frames doesn’t can obfuscate the proper technical approach to a given security.
As discussed, TSLA’s trend right now is upward on the intermediate trend and minor (short-term) trends. But the primary trend is still arguably sideways when considered from 2-3 years ago. And the secular trend since 2010 arguably still remains upward.
But may a trend trader peek outside the trend? That is a complicated question without a definite answer. For those wanting to explore whether it’s prudent to look at non-technical evidence outside the scope of the trend (e.g., considering the fundamentals and the broader macro), the following post offers some cost-benefit analysis and suggestions:
For those who wish to avoid being influenced by fundamental information, please skip this paragraph and read on to the next one. Andrew Dickson, the founder of Albert Bridge Capital and CIO of Alpha Europe Funds recently noted the following incongruities (downtrends) in EPS-estimate trends vs. price trends:
1. In late 2022, TSLA’s sell-side analysts expected $6.34 EPS in 2023 (about 9 months ago estimates).
2. After TSLA reported delivery numbers in early July, Dickson noted that “despite today's apparent 4% rev beat (implied from delivery-numbers) for Q2, 2023 EPS expectations have plummeted to $3.50. So earnings expectations for TSLA are now down -55% in 9 months and yet the stock is up +15%.”
3. He concluded that "the 2023 P/E multiple has expanded from 38x to 79x, or by 107%."
Dickson’s comments show that price is often not driven by fundamentals. Exactly what was priced in when the stock plummeted to $100 in January? And what is different now has nearly doubled off the lows? Or maybe the question is whether the data that gets priced in has different (and ever changing) weightings depending on the type of data. For example, maybe the data that affects price is most heavily weighted toward liquidity, capital flows, sentiment, seasonality, rather than fundamentals. But David Lundgren, a combined technical and fundamental analyst for whom SquishTrade has utmost respect, highly regards technical analysis, and especially favors technicals in the short / intermediate term, but says that fundamentals always matter in the long run. Here is a quotation from Lundgren from notes I've taken on his commentary in interviews and articles: "In the long-term, actual fundamentals will simply overwhelm any short-term technicals, emotions, sentiments driving a security or market price action."
Concluding Comments
Traders think in terms of probabilities, not certainties. Further, traders' time frames, risk management, and position sizes vary dramatically, which is why it seems imprudent to blindly follow another person’s signal service (whether paid or free). One very knowledgeable TV follower of mine has shorted TSLA with a position size that gives him a sizable margin of error. In other words, he can wait and allow significant fluctuations in price before getting shaken out of the position. My inference from our conversations is that his short thesis is based on deeply and persistently inverted yield curves, volatility being at major lows, deteriorating fundamentals at TSLA and other broader macro problems.
But macro and fundamentals can take a great deal of time to unfold, i.e., they do not play out immediately, and if they did, the big short should have been weeks or months ago. This year everyone thought a recession would be here by now, including experts with long-term experience managing or advising multi-billion dollar funds. This does not mean my fellow trader must be wrong. His thesis might yet succeed with time and patience, or it may yet experience more pressure or even be stopped out. This is why position size, risk management, and time frames matter. Before entering a trade or investment, one must consider time frame, position size, risk tolerance, risk management, technical or fundamental evidence, and an invalidation or stop level (which defines risk and relates integrally to position size). Shorter-term traders with leveraged, derivative, or supersized short positions would have already gotten crushed trying to short TSLA or other mega cap leaders the last few weeks or months.
Preliminary Comments
TSLA is poised to stall soon, perhaps into July 21. By definition, a stall does not necessitate a crash or major trend reversal (at the primary degree of trend). A major reversal downward (crash) is always possible especially once shorts have been decimated—major downward reversals seem to always wait for clearing out of hedging and shorts, right?
Although a major trend reversal could occur here given major resistance levels just overhead on higher time frames, no one has a crystal ball. Finding the time and price components of such a major reversal can be exceedingly difficult (note the conclusion section of this article about probabilities).
And no one who were to have a crystal ball that worked properly would share it. And a securities regulator would be sniffing around for insider trading for sure with too many trades lining up too perfectly especially before major news catalysts. Humor aside, trying to be too clever by calling the exact top is a misplaced endeavor. But it can be prudent to analyze the charts and consider the idea of vulnerability for a trend’s continuation in the short-to-intermediate term, i.e., whether the move might encounter major resistance that could at a minimum cause a mean reversion or retracement of the recent rally.
Trend Analysis
The charts don’t lie. TSLA’s intermediate-term trend since January 6, 2023 remains upward. Similarly, short-term (2-6 weeks) and intraday trends remain upward. But the primary trend is still arguably sideways when considered over a 2-3 year period, while the secular trend since 2010 arguably still remains firmly upward.
1. Secular trend (since 2010): uptrend
2. Primary trend (since 2020/2021): sideways trend (range)
3. Intermediate / secondary trend (since early 2023): uptrend
4. short-term trend: uptrend near crucial resistance
5. intraday trends: uptrend near crucial resistance
Supplementary Chart A: Primary Trend
Supplementary Chart B: Secular Trend
The intermediate term trend has run fast and furious for 1H 2023 (since the Jan. 6, 2023 low). That alone is not enough to expect a reversal. Shorting something merely because it seems to have risen too far is a well-known trading mistake comparable to catching a falling knife in a downtrend. Shorting powerful uptrends is not an easy way to make a living.
But several charts suggest vulnerability for TSLA’s rally at this level. This comes right as earning will be reported this week along with a major monthly options expiration on July 21. Earnings reports like TSLA's upcoming one present a binary risk event that could stretch prices significantly in either direction, or it could a whipsaw price in both directions before settling on a final directional move (see the section below titled “Trend vs. Fundamentals.”)
Supplementary Chart C shows that TSLA’s price is nearing a crucial Fibonacci level on a linear chart. This is the 61.8% Fibonacci retracement ($299.05) of its entire decline from its all-time high into the early January 2023 low. Coincidentally, this level shows confluence with other important resistance levels shown on the chart such as the down trendline from the all-time high. (Some prefer Fibonacci levels adjusted for a logarithmic chart, which is not shown. The next relevant upside Fibonacci level on a log chart, however, is the .786 of the entire decline at $306, which is not far from the .618 level at 295.05.
Supplementary Chart C
If the .618 Fibonacci retracement is overcome and held (not just a false breakout), this suggests prices may run higher to at least $314.67 or the next higher Fibonacci level at $347. But these are upside levels conditioned solely on the .618 retracement being overcome and held.
Next, consider the down trendline from TSLA's all-time high. This is being approached at around $300, right were significant call OI exists. Trendlines can be somewhat rigid measures of trend, but they can provide some value especially when other support / resistance levels coincide with the trendline. The down trendline from TSLA's all-time high runs right into the measured-move zone, shown by the blue circle on Supplementary Chart D.1.
Supplementary Chart D.1
Some traders prefer to look only at logarithmic charts, though here it doesn't add much to the technical picture since the trendline is quite close to where it lies on the linear chart.
Supplementary Chart D.2
Finally, some bearish divergences in momentum and price/volume indicators suggest that price has become quite stretched right at a time when TSLA has reached some major resistance levels. Supplementary Chart E shows the Elder Force Index (EFI), a useful indicator that displays a combination of volume and price, weighing the extent of each price change along with the extent of volume. It tends to pick up divergences in the "force" or commitment behind a move with more sensitivity than RSI or other common momentum indicators, but with increased sensitivity often comes more noise (more false signals) which can be helped to some extent through indicator adjustment. Nevertheless, here is what that indicator shows for TSLA on the daily timeframe:
Supplementary Chart E
As TSLA has made higher highs, it has done so with less force and commitment for each high, creating a divergence between higher price highs and lower EFI highs. TSLA may make a new YTD high this week, and if so, it will be important to see where the EFI high prints for that new high. Given how low EFI is currently, it would take a lot of volume and price change to move the high to exceed the prior EFIs (erasing the divergence). In SquishTrade's view, EFI is unlikely to erase both the June EFI high and the January EFI high even if TSLA runs to $300-$320 post earnings.
Supplementary Chart F shows RSI and ROC, two common momentum indicators which most readers understand well. ROC shows a series of three highs that each make a successively lower high while price made higher highs at the same time: January 2023, June 2023, and July 2023. RSI only shows a series of two highs where price made a higher high and RSI made a lower high.
Supplementary Chart F
Downside Targets
TSLA's price seems poised to pullback / retrace at a minimum. But referring to downside targets may seem a bit premature as price hasn't confirmed even a short-term reversal or the start of a retracement / consolidation within the intermediate trend yet. The technical conditions for a retracement are present, so if confirmation lower does occur in the next week or so, price can fall to trend support, however one decides to measure that within one's trading system.
Based on persistently and deeply inverted yield curves, many astute market players may be looking for more than just a retracement or consolidation within the intermediate uptrend. They want more than mean reversion, and that is understandable. Should TSLA followers expect that now? Today, July 15, 2023, confidence cannot exist about an impending trend reversal on higher time frames. Why? A major reversal where price retests / breaks January 2023 lows will likely coincide with recessionary economic data (e.g., rising UE rates), drastically changing EPS estimates based on disappointing earnings reports, and/or unexpectedly high interest rates across the curve because of sticky inflation won't budge further downward (the recent CPI print came in at 3% for headline but 4.8% for core for June 2023). Note: Fundamentals are discussed in greater depth in the next section below. But economic data has continued to come in better than expected. Recent real GDP print for Q1 2023 was recently raised to 2% and labor markets remain persistently tight as the Fed even has noted in its recent pressers. Inflation has cooled for June but this may result from basing effects.
Most importantly, trend structure on the weekly and daily time frames (intermediate and short-term) has not been broken. Until the intermediate trend structure is decisively broken, forecasting a major top / trend reversal is rash and unfounded from a technical viewpoint. This intermediate-term trend structure is the up trendline from January 2023 lows or some other more dynamic or flexible measures of trend.
So with the idea that price can run a bit higher before any retracement—since we haven't yet seen a confirmation lower yet—these downside targets remain conditioned on a short-term trend reversal. For now, the targets also must be considered corrective retracements / mean-reversion targets within the context of the current trend until the evidence proves otherwise.
Conservative Target: $245-$250
Moderate Target: $232-$238
Aggressive Target: $199-$218
Trends vs. Fundamentals
A purely technical analyst or technically oriented trend trader tends to consider only the trend and technical evidence supporting that objective. At critical junctures after retracements / corrective moves, this means favoring trend continuation rather than a reversal until the evidence says otherwise. And pure trend following means seeing the odds as favoring mean reversion when a trend gets too extended or stretched rather than reversal.
Ambiguity as to trend on varying time frames often confounds the discussion of trends. This is why it's important to remain precise and focused on time frames. For example, a long term secular trend in a given index can be upward while a primary trend can be downward or sideways (retracing / consolidating within the secular uptrend) while an intermediate trend can be upward (retracing or consolidating the primary downtrend)—and intraday traders levered up on calls and riding the short-term rip may be so hyperfocused on a rip in the short term that they dismiss a long-term analyst’s accurate characterization of corrective rally within a primary downtrend. This is just a hypothetical example of how vagueness around terminology and time frames doesn’t can obfuscate the proper technical approach to a given security.
As discussed, TSLA’s trend right now is upward on the intermediate trend and minor (short-term) trends. But the primary trend is still arguably sideways when considered from 2-3 years ago. And the secular trend since 2010 arguably still remains upward.
But may a trend trader peek outside the trend? That is a complicated question without a definite answer. For those wanting to explore whether it’s prudent to look at non-technical evidence outside the scope of the trend (e.g., considering the fundamentals and the broader macro), the following post offers some cost-benefit analysis and suggestions:
For those who wish to avoid being influenced by fundamental information, please skip this paragraph and read on to the next one. Andrew Dickson, the founder of Albert Bridge Capital and CIO of Alpha Europe Funds recently noted the following incongruities (downtrends) in EPS-estimate trends vs. price trends:
1. In late 2022, TSLA’s sell-side analysts expected $6.34 EPS in 2023 (about 9 months ago estimates).
2. After TSLA reported delivery numbers in early July, Dickson noted that “despite today's apparent 4% rev beat (implied from delivery-numbers) for Q2, 2023 EPS expectations have plummeted to $3.50. So earnings expectations for TSLA are now down -55% in 9 months and yet the stock is up +15%.”
3. He concluded that "the 2023 P/E multiple has expanded from 38x to 79x, or by 107%."
Dickson’s comments show that price is often not driven by fundamentals. Exactly what was priced in when the stock plummeted to $100 in January? And what is different now has nearly doubled off the lows? Or maybe the question is whether the data that gets priced in has different (and ever changing) weightings depending on the type of data. For example, maybe the data that affects price is most heavily weighted toward liquidity, capital flows, sentiment, seasonality, rather than fundamentals. But David Lundgren, a combined technical and fundamental analyst for whom SquishTrade has utmost respect, highly regards technical analysis, and especially favors technicals in the short / intermediate term, but says that fundamentals always matter in the long run. Here is a quotation from Lundgren from notes I've taken on his commentary in interviews and articles: "In the long-term, actual fundamentals will simply overwhelm any short-term technicals, emotions, sentiments driving a security or market price action."
Concluding Comments
Traders think in terms of probabilities, not certainties. Further, traders' time frames, risk management, and position sizes vary dramatically, which is why it seems imprudent to blindly follow another person’s signal service (whether paid or free). One very knowledgeable TV follower of mine has shorted TSLA with a position size that gives him a sizable margin of error. In other words, he can wait and allow significant fluctuations in price before getting shaken out of the position. My inference from our conversations is that his short thesis is based on deeply and persistently inverted yield curves, volatility being at major lows, deteriorating fundamentals at TSLA and other broader macro problems.
But macro and fundamentals can take a great deal of time to unfold, i.e., they do not play out immediately, and if they did, the big short should have been weeks or months ago. This year everyone thought a recession would be here by now, including experts with long-term experience managing or advising multi-billion dollar funds. This does not mean my fellow trader must be wrong. His thesis might yet succeed with time and patience, or it may yet experience more pressure or even be stopped out. This is why position size, risk management, and time frames matter. Before entering a trade or investment, one must consider time frame, position size, risk tolerance, risk management, technical or fundamental evidence, and an invalidation or stop level (which defines risk and relates integrally to position size). Shorter-term traders with leveraged, derivative, or supersized short positions would have already gotten crushed trying to short TSLA or other mega cap leaders the last few weeks or months.
Nota
Correction / Amplifications: The final paragraph queried whether fundamentals were related to the price move we've seen. And it compared fundamentals between now vs. January 2023 when TSLA traded around $101, and asked what is different now that TSLA has nearly doubled off its lows. TSLA has actually tripled (not doubled) off its lows esp. with the high today of $299.29.
Nota
Starting early yesterday, mid-day, TSLA stalled in its bullish run consistent with the above analysis forecasting that possibility. It has fallen –11.72% so far from its intraday peak yesterday.The intraday high yesterday reached $299.29. Price reversed intraday yesterday before earnings were reported and fell back below the crucial .618 retracement at $295.05. The intraday peak near $300 landed right at a confluence of resistance levels, which include (1) levels displayed on the Primary Chart showing major horizontal resistance and parallel uptrend channel resistance, and (2) Fibonacci, measured move zones, and down trendline resistance levels shown on Supplementary Chart D.1 / D.2. Supplementary Chart D.1 is reposted here for easier reference:
The measured move zone’s upper bound was $299.72. The .618 retracement of the entire decline from the all-time high to the low in early January 2023 = $295.05. And these coincided with trendlines on both the linear and log charts. These technical levels coincided, unsurprisingly, with positioning data showing that TSLA had very high call OI right in this $295-$305 area. Many long call holders likely took profits before the close yesterday, causing dealers to unwind long TSLA hedges, and leading to some weakness in the stock before the earnings report even hit.
Initial short-term trend support lies at $263-$265. TSLA broke a smidge below this intraday so far. A .618 Fibonacci level comes in at $263.08 and $265.10 is a key swing low that was undercut slightly today. These levels could lead to a brief bounce to retrace some of this first leg down, but it doesn't have to do so.
Nota
Here is an update on the best and worst performing areas of equity markets. Chart provided by GammaLabInterestingly, defensive areas such as Utilities and Healthcare outperformed nearly all other areas of the financial markets. The chart below shows which areas were the relative worst performers on the day.
Nota
Fun fact: What was the most liquid (highest trading volume) stock in the world this week? Yep, you guessed it—TSLA was, and it wasn't even close. With this comparison, I’m ignoring ETF securities, which are not stocks. Typically SPY is the most liquid ticker / security in the world, though there are days where AAPL, TSLA or another mega-cap name can exceed SPY or QQQ’s trading volumeIf anyone finds a publicly traded equity that traded more shares than TSLA did this week, please let me know in the comments
I had been reading over the past several days about how call options on TSLA were reaching stratospheric levels. Call options on TSLA exceeded the options volume for any other name, but I cannot recall the source of that statistic.
In any case, after an interesting discussion with other members about liquidity in TSLA, I wanted to see specific trading volume stats for TSLA this week in options and stocks. Most everyone knows that TSLA is one of the most liquid tickers publicly traded, but AAPL has topped the list of most liquid names quite frequently in recent years on a daily / week basis (again not comparing stock liquidity to index-ETF liquidity). If time permits, I’ll post some statistics on this later.
Nota
Here are some of the liquidity / volume statistics for TSLA:Nota
Here are some of the options statistics for July 21, 2023, for TSLA along with comparison to the top-4 highest optionable securities SPY, QQQ, IWM, and AAPLNota
Bulls and bears alike will find much to think about in NordicVetMBA’s fundamental deep-dive below. Some readers in the comments had commented in past days about how important fundamentals are. SquishTrade agrees that fundamentals always matter in the long-term. Now, we have NordicVetMBA’s expertise and well-trained eye help us understand the central and crucial points from TSLA’s most recent earnings report! After reviewing TSLA’s earnings report from a few days ago, NordicVetMBA identified key financial data in this report, summarized them along with insights and analysis, and provided helpful context and perspective as well. SquishTrade recommends that readers follow NordicVetMBA and give him a comment of thanks for taking the time to provide us with his keen insights on TSLA’s underlying business and operations culled from the most recent information available on this company, TSLA’s most recent quarterly earnings report.
Very few can match NordicVetMBA’s insights and expertise into the multifaceted aspects of many business firms. His deep understanding of many corporate business structures / models, his effortless insights into financial statements and operations, his comments on efficiencies / inefficiencies / competition and margins.
The following several updates will contain NordicVetMBA’s summary and comments on TSLA’s Q2 earnings report (since they did not fit into one comment update, they must be spread over several updates) FN1
A. HEADWINDS / NEGATIVES
1.) My first concern is the margin compression. The way the released investor slide deck is organized, it may be “accidentally / on purpose” done so as to conceal what has been happening. To correct this problem, I pivoted their table into the Excel sheet (shown in TradingView chart immediately below).
Looking at the trailing three quarters, gross margins have reduced for each of the primary business units. The only business unit’s gross margin that is unaffected is TSLA’s Regulatory Credits Sales (selling their carbon offset credits to other manufacturers), which remains a healthy 100%, but the total revenue for this unit is decreasing. Presumably other manufacturers produce more electric cars and either do not need them or the market is diminishing, or new vehicle sales are slowing, or a combination of all 3.
Automotive Sales have fallen –6.231% (in terms of gross margin) in the last 6 months. Across all of TSLA’s business lines, gross margin has dropped –5.571% (of gross sales) in the last 6 months.
2.) My second note (which may be a contributor to the first) is that Tesla still suffers from the problems plaguing the rest of the auto industry. Tesla cannot deliver all of the cars it produces. In Q2 2022 TSLA released a statement that it was having difficulty completing (thousands) of cars due to supply chain problems, primarily a shortage of microprocessors. At the peak, General Motors reported about 800,000 vehicles that it could not complete and were being stored pending arrival of various parts. This materializes as partially-completed cars with supply inputs that are now available but left unfinished in storage. Of course, the supply products they do have that are in partially-built cars have a cost, and storage of the non-drivable vehicles also has a cost, and there will be a labor cost to eventually finish and catch-up.
In Q2 2023, TSLA did not deliver 264 Model S/X vehicles (down from 8,742 in Q1 2023) and could not complete 13,296 Model 3/Y vehicles, down from 30,957 in Q4 2022.
It appears TSLA is favoring completion of the higher-priced Model S/X platforms when it can, versus the lower-priced 3 or Y vehicles, and this is the right decision, assuming the shortage components are interchangeable.
To be continued in the next comment / update below 👇
Nota
Continued fundamental-deep dive from NordicVetMBA:3.) TSLA remains expensive with a P/E (price-to-earnings ratio valuation) of 70 versus peers GM (5.7), Ford (19.97) or Stellantis (3.08). I don’t compare (TSLA’s P/E) to Rivian, Lucid, or similar firms, because I only consider investing in companies (a) that are turning a profit or will turn a profit within 12 months, and (b) that have the cash reserves to survive until turning profitable.
The justification has always been the TSLA potential, but revenue growth has slowed, net income is no longer growing at a break-neck rate, and there is a surplus of production capacity.
4.) Solar revenue is down and declining. TSLA notes that such decline is due to higher interest rates, but I disagree. Utility costs in target markets for solar have skyrocketed, making the cost of solar (including higher interest costs for purchasers of solar) moot in comparison. Rather, this reflects that TSLA is probably reaching a combination of market saturation while at the same time confronting competition from lower-priced imported products / options.
5.) Desirable areas of growth are not performing. Energy storage sales/revenue is stagnant or declining. Services revenue is stagnant or declining. And as mentioned above, the total revenue from carbon offset credits is generally declining.
6.) Sales of higher-priced models are very obviously in decline. A rather shockingly-low 4.83% of shipped vehicles in Q2 2023 were Models S or X. Tesla competitors, specifically GM, Ford, and Stelantis (Chrysler/Ram/Jeep) tend to sell more vehicles at the mid-trim and higher-trim levels versus the "base" models. That said, the 3 and Y do not look or drive like an econobox and I do not mean to imply that they do. But it can also suggest that the S and X may be simply over-priced. Do consumers want an electric car that looks / drives a lot like a Toyota Camry for $100,000, or would they really prefer the Bimmer, the E-Hummer, or the Mercedes? There are a lot of options at 6-figures.
For example, to put Tesla sales into perspective, GM sold about 530,000 Chevy pickups in 2021, and about 249,000 of the higher-trim (and higher-price) GMC Sierra models that are a functionally identical vehicle. That is a 66% to 33% product mix (versus a paltry 95% 3/Y to 5% S/X in the Tesla product mix). Note, GM sold twice as many vehicles classified as pickup trucks as the total number of cars that Tesla sells (and GM sells a lot of other types of vehicles).
7.) Pricing Pressure. Tesla has been implementing a dynamic (demand-based) pricing model. Think of this as sort of like picking a color of a product you want at Amazon. You may have noticed that when buying a new pair of jeans or shoes on Amazon’s website, sometimes the price fluctuates by the color of the product. The blue or black jeans that you normally buy may be $60, but if you stomach the orange pair, they are discounted to $19.50, some (popular) sizes may even be more expensive than the ones that are sitting on the warehouse shelf a little too long.
Airlines use similar models. You may notice that it might cost $450 to fly from LA to Chicago, but only $390 if you fly to Madison, WI. The flight to Madison starts with the same direct flight to Chicago (that the airline sells for $450) but is only $390 if you take the second flight from Chicago to Madison. Why? That is one of the mysteries of the universe. But it boils down to supply & demand. There are more people trying to buy a flight to Chicago, so the airline can charge more for it.
Tesla has a similar strategy. On their website, savvy buyers may have noticed that the price "floats" by zip code, state, etc. Personally, I am the kind of person that would take advantage of that. Would I fly to South Dakota to save 5k and a car? Normally yes, but I may get a little grumpy after the 12th recharge stop on the way back. By the way, sales tax is only 4.5% in South Dakota and you only pay it on the difference between a trade-in and the replacement vehicle. License & registration is about $250 if you decide to stay.
A headwind / negative is that Tesla has resorted to dynamic pricing to ensure it sells its inventory.
8.) TSLA needs a broader array of products. There was wisdom in keeping it simple until they had become really good at building cars, but now they are not able to sell all of the cars they can physically produce. There is a finite limit to the number of 4-door sedan buyers in the market, and a smaller number (of 4-door sedan buyers) who will shell out $45,000 to $120,000 for one.
9.) Price. Ford just announced they are (severely) cutting the price of the Ford Lightning after bragging less than a year ago about how many reservations they had pre-sold. I guess the market for a 120k half-ton is not as strong as Ford thought it would be.
This same situation applies to Tesla—look at the product mix of Model S/X vs 3/Y. Buying a $100,000 Tesla w/ 10% down (+ the EV incentives), and the 9.25% California sales tax rate, equals approximately a $1,584 car payment.
My ¾-ton Ram Limited 4x4 with air-ride uses about $200 / month of fuel for my limited driving needs and I have 0 car payments. (And the heater works great in South Dakota, so the Tesla is still a tough sell in my case.)
10.) Economic Moat. TSLA enjoyed a wide economic moat for a long time, meaning the product was significantly differentiated and sufficiently advanced compared to its competitors so as to enjoy an unrivaled comparison. That is changing as additional models roll out from other manufacturers. The biggest difference now is that Tesla software is very good, but it is also just software, i.e., other manufacturers can catch up if they want to do so or can sell their cars for 20k less if buyers don’t mind a lower-priced dashboard interface.
To be continued in the next comment / update below👇
Nota
B. TAILWINDS / POSITIVES1.) As recently as Q1 2021 TSLA would not have shown positive cash-flow without relying on the sale of carbon offset credits. This was always a valid criticism of the stock historically but now this issue at last remains 9 quarters back in the rear-view mirror. The company is swiftly generating free cash-flow relative to its sales (but not relative to its market-cap).
2.) Dynamic pricing is also a positive as well as a potential concern. There is a stronger demand for electric vehicles in Los Angeles, CA than there is in Grand Forks, ND. That will be a fact for a very long time. The dynamic pricing models seem to ratchet the prices up a little bit where demand is stronger and drops them to move vehicles into geographical areas and climates where Tesla is not competitive.
3.) IP. Tesla’s patented/proprietary charging interface, software and power specifications, and the super-charger network itself are now being adopted (and licensed) by many of it's competitors. Think of this as Tesla becoming the Exxon of the future, assuming it can keep its power supply costs (to the chargers) reasonable and maintain a decent margin on the charging fees. This is a big win.
4.) Vertical Integration. Elon Musk has other companies he can leverage for future margins on Tesla vehicles. One can think of integrated roof-top solar panels embedded in the paint job some day, Starlink in-motion satellitea, receiver antennas on the trunk the size of a current-era Sirius-XM antenna, and Space-X branded trim levels with five-point seat harnesses.
5) Starlink. The full self-driving probably works better with a lot of cloud-driven computing power. Starlink works everywhere, not just where there is a cell signal. Other manufacturers may have to license this too eventually. Food for thought.
FN1 With the exception of a few minor non-substantive revisions, the entirety of the above commentary and analysis was provided by @NordicVetMBA. It is not provided as financial or investment advice. It is provided only for educational and informational purposes only.
DISCLAIMER: This post and its updates contain commentary published solely for educational and informational purposes. This post and any of its updates / comments / links do not constitute financial advice or an investment or trading recommendation, and they do not account for readers' personal financial circumstances, or their investing or trading objectives, time frame, and risk tolerance. Readers should perform their own due diligence, and consult a qualified financial adviser or other investment / financial professional before entering any trade, investment or other transaction.
Nota
We've had a significant pullback and stall. Price fell -15.09% from the high of $299.29 on July 19, 2023. The first conservative target zone was $245-$250. Price fell $45.17 to a low today of $254 before bouncing hard intraday but holding below $270 at close. This has substantially satisfied the distance to the edge of this conservative target zone by traveling $45 / $49 of the distance (85% to 92% of the distance to this zone)
Nota
Shorter-term (intraday) time frames show that TSLA continues to contend with its $270-$272 level. Right now, price action is choppy and unpredictable on ST time frames. The market is likely in wait-and-see mode before yet another FOMC presser, which presents a bi-directional catalyst. Probabilities are high for a 25 bps hike, and that is priced into the market broadly speaking. What is not priced in is the Fed's forward-looking comments about more rate hikes (if any) or other aspects of its policy or inflationary views.TSLA is stuck between the VWAPs from its July 19 swing high and July 24 swing low. The minor Fib retracements for this move are as follows: $271.38 (.382), $276.71 (.50), $282.04 (.618), and $289.63 (.786). Additionally, gap resistance (short-term) now lies at $290 area.
Nota
FOMC day can be a volatile and unpredictable day for stocks and indices. Here are a few observations:1. TSLA's range has been narrow for today's bar.
2. On intraday TFs, traders probably waiting for a break of this small triangle pattern for the next *short-term* move.
3. Intraday range is $254 – $273. $254 = July 24 swing low from the initial post-earnings decline. $273 = confluence of VWAPs from recent swings on July 19 (high) and June 26 (low) and the high from yesterday July 25.
A lot of chop in indices occurred today with swings up and down as usual on a FOMC day. SPX closed basically flat (down -.02%) and NDX down a little (-.33%), and TSLA mirrored this "flat" and choppy theme today.
Note that TSLA was the most active for volume levels in options trading, well above MSFT and GOOGL, which were high due to their earnings reports.
Nota
Short-term update July 28, 2023Yesterday saw a surprise reversal broadly in US equity markets. TSLA was no exception, declining about -5%. But it held short-term support at its July 24 low in the 245-255 range. And today, TSLA's price has stabilized somewhat in intraday price action. Now, price is within the upper portion of the trading range that has existed since July 21 (a week ago Friday), is shown in the blue rectangle in the updated chart below:
This raises the *possibility* that (a) prices remain supported for a week or two and (b) fill the gap zone above to $285-$290 over the next couple weeks into August 2023. Before we can get excited about a potential gap fill, the heavy resistance zone at $270-$273 needs to be overcome decisively (daily close).
Updated Intraday Chart, 7/28/23 at 2:35 EST (US)
Here are the Fibonacci retracements of the July 19-24 decline:
1. .382 = $270.52
This Fibonacci level shows confluence with upper end of last week's trading range, which has been $254-$272, as well as key VWAPs from recent swings here as well.
2. .50 = $275.79
3. .618 = $281.16
4. .786 = $289
This level coincides with the upper end of the gap zone at $289-$290 from after the mid-July earnings report.
Lastly, it's important to note that whether price can exceed its July 19 highs in the next multi-day price swing is too early to tell. But my *short-term / intraday TF view* is that prices could continue to be supported into early August 2023 unless price breaks back below $254 on a daily / weekly close.
Nota
Fibonacci levels discussed in the previous update from today:Nota
Price tagged the upper bound of the conservative target zone early in today's trading session. (The conservative target range was $245-$250.)Price undercut the July 24 low by a few points but has recovered into the close today. The July 24 low ($254) has been the lower bound of the post-earnings trading range. Price is struggling to find its way back into the range as we near the close today. It remains unclear whether it will reclaim the $254 on today's close.
If price can recover into the trading range, it will be a false breakdown through support, which may imply short-term bounce. But if price holds below the range at $254, then lower prices are more likely.
Lastly, notice how the key anchored VWAPs from recent swings have not yet been overcome. In a prior update, those VWAPs were identified as crucial resistance that would preclude further upside unless recaptured.
Nota
The daily / weekly close is the preferred time for comments and updates. But equity indices appear to be making a nasty intraday reversal—TSLA does not appear immune to this reversal.On August 2, 2023 (two days ago), TSLA tagged the conservative target zone at $250, after which it recovered into the daily close. SquishTrade noted that a recovery / reclaim of the prior support at $254 would constitute a short-term failed breakdown that could lead to a short-term bounce. Note that this did not change the intermediate-term view, it was instead just a short-term technical development. In any case, a short-term bounce materialized with TSLA moving a little over +4% higher from $254, rising $10 to $264.77 today. But the intraday reversal so far is erasing most of the gains. This is not a good look for continuation, much less overcoming the anchored VWAPs near $268-$270 in the near term.
$254 is the key level to watch on the daily / weekly close. A false break above $254 will likely signal the end of this particular bounce and lead to a new low near term.
Have a good weekend everyone!
Nota
Last week was interesting. August 3—Price reclaimed the $254 zone intraday after testing it a few times. This put the short-term bounce in play. Price indeed bounced about 4% ($10.64) from the reclaim of the $254 level, rallying up to $264.77.
Despite moving sharply up +4%, this short-term bounce failed right at the July 19 VWAP, which had been firm resistance in prior days as discussed above.
August 4—The update an hour before the close noted a nasty intraday reversal in indices and major stocks was not positive for any continuation higher of the short-term bounce. The update stated: “This is not a good look for continuation, much less overcoming the anchored VWAPs near $268-$270 in the near term," and explained that $254 was critical since it was the level where the failed breakdown occurred and that a failure back below this level (a false breakout above) would lead to a new low near term
August 7—Monday this week saw a new low arrive quickly (this week week with Monday’s session). Price tagged the –2 standard deviation Bollinger Band on the daily chart while forming a dragonfly doji with a long lower wick. The intraday low was $242.76, a few dollars above the moderate target zone of $238.
August 8—Price has been holding above the $242 low made Monday, August 7.
Important ongoing levels this week:
July 19 and June 26 anchored VWAPs at $263-$266 now (they've declined over time)
Price resistance near term: $250-$254
Price support: $242-$244
Nota
The US Department of Labor's Bureau of Labor Statistics releases the July CPI print tomorrow before US markets open. It's important to respect the market before major catalysts like this. No one knows the print (we can hope). Even if some people thought they knew the print, they would not know how the market will react. Overall, this has been a nice move down for mean reversion traders. Price has fallen $57.39 from $299.29, which was the pre-earnings high in mid-July 2023.
Nota
Overall, TSLA has substantially achieved the move that this post had expected. Price fell –$61.10 from its mid-July peak of $299.29. This is a –20% decline that reached both the conservative and moderate targets. This will be the last update for this post. Thank you very much to everyone who has read and commented on it! The variety of views are much appreciated. And thank you again to NordicVetMBA who provided high-quality fundamental insights from an objective standpoint.
Last week on Friday, TSLA broke slightly below the June 26 low at $240.70, but it recovered back above that level. The breakdown below the $240.70 level and the subsequent level reclaim could be a short-term false breakdown at a support level / swing low followed by a reclaim of that level. This can spark a short-term rally. Remember the 4% rally on August 2 that occurred after a brief failed breakdown below support, which eventually failed at VWAP resistance.
After OPEX on Friday this week, markets could increase in volatility. This raises questions about the sustainability of any bounces that may occur this week.
In sum, chop presents very tough price action especially for anyone entering new positions (long or short) in SPX, NDX or even TSLA in this $238-$254 TSLA range. The picture is less clear at these price levels than it was at $299 to be sure.
The anchored VWAPS that we have been tracking in the updates (from June 26 low and the July 19 high) fall at $260 and $266 now. As expected, they have declined as lower volume-weighted prices get added into each VWAP’s data window.
The conditions for a bounce are present, but price has not yet confirmed such a bounce (other than on the shortest intraday TFs and the failed breakdown discussed). The chart below shows a positive series of divergences.
Such divergences appear on several different intraday time frames. But the 4h and daily do not yet show it.
Divergences are not a signal, however, but more of a caution light for a reversal being more possible. Technical principles state that divergences reveal an ongoing weakening of the trend—but only on the time frame being considered. Since these are intraday divergences (30-minute, 1-hour and 2-hour charts), it may be the case that their significance is limited to shorter-term effects. So bulls may want to be cautious with any bounces, wary of supply at VWAPs and gaps overhead.
The next chart shows a potential falling pennant that might also be something to watch, we’ll see. One other support to watch that is not drawn is $227, and that is the measured move from the high in mid-July pre-earnings.
Nota
This chart should have been included in the last update above. It shows the VWAP from the all-time high coming in with confluence near the $235 level shown in yellow in the earlier update today. It also shows the H&S neckline that was broken last year and then reclaimed this year. This $232-$235 level seems important to watch.Trade chiuso: obiettivo raggiunto
SquishTrade
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