All Eyes on Tesla Stock Ahead of Earnings

Tesla, Inc. (TSLA) has asked “dozens of people” to return to work on Wednesday, just in time for a first quarter release that is likely to undermine optimism as to whether the electric vehicle (EV) manufacturer can re-establish a sales trajectory that underpinned a historic uptrend into February’s all-time high. Sadly, there’s no way to get an accurate gauge on sales or cash flow in the quarter because Tesla and CEO Elon Musk have offered no guidance on the pandemic’s impact, unlike the majority of public companies.

The mercurial executive has made his skepticism about the outbreak clear since January, when a two-week shutdown at Tesla’s Shanghai gigafactory raised red flags about first quarter results. That production line is now back in business, but demand is questionable, with Chinese citizens just now getting back on their feet. However, it is clear that wealth destruction all around the globe could take a toll on international revenues in coming quarters, trapping hopeful shareholders.

Wall Street has been kind to Tesla during the pandemic, with the usual cheerleaders pounding the table, telling investors to look past the current crisis and toward future results. However, nearly every auto manufacturer around the world with the exception of Tesla has warned about long-term headwinds, understanding from history that industry sales are highly cyclical, rising during periods of economic expansion and falling during periods of contraction.

In any case, Wednesday’s confessional will offer a valuable reality check, both in actual results and in subsequent price action. Downside risk remains exceptionally high heading into the report, underpinned by a large supply of new shareholders who have picked up shares since the stock fell to $350 in March. They’ve been rewarded with out-sized gains since that time, adding to complacency that favors sellers over buyers after the news.

TSLA Long-Term Chart (2010 – 2020)

Tesla stock rallied out of a two-year range in 2013, entering a momentum-fueled advance that stalled above $290 in 2014. It then settled into an equally persistent range that broke support in 2016, dropping to a two-year low that marked a low-risk buying opportunity, ahead of a bounce that broke range resistance in 2017. The long-term uptrend stalled a third time just two months later, posting a new high at $387 before easing into a range that broke support at $250 in May 2019.

The June 2019 low at $177 also marked a selling climax, ahead of a new rally leg that broke resistance at the 2017 high in December. Momentum traders took control in February, carving a vertical impulse that matched the intensity of the 2013 into 2014 buying wave. The stock posted an all-time high near $1,000 at the start of February and failed a breakout attempt two weeks later, completing a double top breakdown when it violated short-term support near $700.

TSLA Short-Term Outlook

The sell-off tested December breakout support successfully while holding above the 50-month exponential moving average (EMA) and tagging the .786 Fibonacci rally retracement level. It has lifted into resistance at the double top breakdown and .618 Fibonacci sell-off retracement level above $700 while awaiting first quarter results that should generate a volatile reaction. The on-balance volume (OBV) accumulation-distribution indicator has returned to resistance at the February high at the same time, highlighting the importance of the upcoming catalyst.

Unfortunately for bulls, the monthly stochastic oscillator isn’t cooperating, crossing into a sell cycle from the overbought level in February. The indicator is now accelerating through the panel’s midpoint, indicating that bears remain in control of the long-term tape despite the short-term uptick. While this conflict doesn’t forecast a breakdown through the March low, it raises the odds for months of volatile two-sided action within the massive range carved in the first quarter.

The Bottom Line

Tesla has offered little or no first quarter guidance, unlike the vast majority of auto manufacturers, significantly increasing risk heading into Wednesday’s earnings report.

Disclosure: The author held no positions in the aforementioned securities at the time of publication.

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