Wow, it sure has been some ride! Telsa stock has rocketed higher than an interstellar, cherry-red roadster and fast become a Wall Street favourite. For a company that doesn’t produce that many cars, the market cap is now even bigger than the likes of Ford, Nissan and VW. This paradox has left many asking where does the company make its money?
Well, looking at the balance sheet, much of this revenue has come from government schemes (energy and SpaceX). In their Q2 2020 earnings, Tesla said its revenue reached $6.04 billion during the quarter, with $428 million of that coming from regulatory credits. This is a significant amount of its income. According to the official Tesla company statement, “In Q2, total revenues remained relatively flat QoQ. The positive impact of higher vehicle deliveries, higher regulatory credit revenue, higher energy generation and storage revenue was somewhat offset by lower vehicle average selling price (ASP) and lower services and other revenue.”
Looking at the chart, there is no doubt that the stock is in an uptrend. Our Pro-Trading System turned red which is a signal to exit current long. This was good because the price has fallen some 29% from its highs and, at its lowest point, hit -42.79%. So is it currently a bargain to grab or is it in fact the beginning of a downturn?
To answer this question we need to look at the broader positioning of the market. In comparison to its counterparts the S&P 500 and Dow, the Nasdaq has been moving unusually high. The upwards US move seems to be much more broad-based and not just a move in the tech sector alone. The recent downtrend does not necessarily mean that the bulls have then left the tech sector and the Nasdaq index for good, it just means the moves could now be more balanced between the sectors in the US.
On the 4-hour chart below this could mean that we are looking for technical signals like the break higher in the Storytelling Indicator on the Pro-Trading System, Trading College’s signature trading software. For further confirmation, a PTS signal would also be good. Now, this does not mean that you will get a profitable trade the very first time but it could well come good later on down the line.
The recently announced stock split will also have wide-ranging implications. This split means that for every one share that you own, each share will now be split into 5. Overall if you already had shares in the company it would mean you hold the same amount as before, just multiplied fivefold. This does however mean that there are more shares available to trade going forward which is probably a good move as they are very much in demand (for now at least).
Where Am I Wrong?
When you take a stock position always think of where you would exit if the price keeps moving against you. In this case, a move below the 30.456.1 area would be where I would go back to the drawing board. If the price managed to get there then it would break the 200 Simple Moving Average and also the rest of the indicators would turn back into the red too. Especially the PTS. On the flip side, if you don’t have the Pro-Trading System then a bullish confirmation would be if the red 55 Exponential Moving Average was broken to the upside. This would reinforce the view that the price could yet move higher still.
Overall, this is a very hard one to call. Many analysts have price targets much higher up. The truth is nobody knows what the future has in store. There are many economic variables that also need to be considered. The upcoming elections, the ongoing Covid-19 pandemic and the latest US Government Stimulus bill. The main thing is that the trend is still in place and if there is a good signal that the market is going to continue in the underlying direction that is all we can ask for. Keep it simple and wait for a Pro-Trading System buy signal to let you know when to make your move.
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