Is it time to get defensive with TSLA?

By Jani Ziedins | End of Day Analysis

Feb 16

Free After-Hours Analysis: 

TSLA finds itself at a critical inflection point Tuesday, closing under the increasingly significant $800 level.

$800 has been supporting this stock since early January. We tested this level a couple of times since then, but both flirtations were quick and prices bounced decisively the next day. Will this time turn out any different? That’s the $764 billion dollar question.

TSLA reported record-breaking earnings late last month and the company threw fuel on the fire last week when it announced a $1.5 billion investment in bitcoin. (Its purchase is already up nearly 50%!)

Surely the stock would be sharply higher following two-pieces of such bullish news… Yeah, no. The stock tumbled 8% following earnings and coincidentally enough, it is also fell 8% after the bitcoin news.

Two pieces of great news and the stock fell both times. A stock that cannot go up on good news is a huge red flag. Either investor expectations are unreasonably high and even great news is no longer good enough. Or we are reaching the saturation point where everyone who wants to buy TSLA has already bought the stock and there is no greater fool left to keep pushing prices higher.

I’m not ready to give up on the stock simply because it closed a measly $3 under $800 on Tuesday. But it is enough to force me to take a more defensive posture. This stock is definitely ownable above $800, but we need to be really careful under this key support level. The stock surged $400 since November and even good stocks experience routine and even healthy step-backs on their way higher. The scary thing is a routine and healthy step-back could lop $200 off the price.

I’m not turning against TSLA, but as long as it stays under $800, this becomes a prove-it situation. The prudent move is to lock-in some profits and see what happens. If prices bounce back above $800 tomorrow or the next day, it is easy enough to buy back in. On the other hand, if prices challenge $600 support over the next few weeks, even better. Take those profits and buy the next bounce.

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About the Author

Jani Ziedins (pronounced Ya-nee) is a full-time investor and financial analyst that has successfully traded stocks and options for nearly three decades. He has an undergraduate engineering degree from the Colorado School of Mines and two graduate business degrees from the University of Colorado Denver. His prior professional experience includes engineering at Fortune 500 companies, small business consulting, and managing investment real estate. He is now fortunate enough to trade full-time from home, affording him the luxury of spending extra time with his wife and two children.