October 24, 2022
By Garry Stern author of How I Trade Stocks
When securities move from bull to bear, subtle warning signs are generally in evidence. The early stage transition to a bear market is most often revealed under the surface and therefore the majority of investors will miss the signals. Until a major event(s) reverses the prevailing bullish narrative to a bearish one, the bullish scenario tends to win the day. Tesla is such a stock.
My research is strictly technical and tactical at a granular level. My work analyzes the rapidly changing moving parts of markets to give clients a rare a view under the hood without news, narratives and forecasts. Tesla has several markers that likely confirm its best days as an investment are behind it. Although, there are several technical factors that support my bearish view, I am in this note providing technical green lights that if passed could signal a reversal.
First a bit of good news: The most recent positive performance for Tesla occurred during the two month rally of the major indices (June 17-August 16). During this period, Tesla gained 41.43% compared to the S&P 500 of 17.45% and the Nasdaq 100 (20.97%). Its performance in the two month period ranked as the tenth best in the S&P 500 and was third place in the Nasdaq 100. However, in the same time frame, Tesla fell behind Ford (+46.3%) and Rivian, which gained 45.69%. Tesla beat GM +22.30% and Race (Ferrari) +20.52%
Now the bad news: From August 4, 2022 when Tesla made its first major high for the move during the two month rally at 313.60, it closed lower that day (308.63). The stock subsequently made two other attempts to close above it, but failed each time. On August 16, Tesla made the high for the move of 314.66 just $1.06 above the August 4 print, but it closed lower on the day (305.66). The final thrust occurred on September 21 at 313.80, but Tesla again closed near the low of the day at 300.80. As of Friday’s close (214..44) Tesla is a one hundred dollars ($100.00) below August-September resistance. A move of approximately fifty percent is required for the stock to test the recent highs.
The next area of major price resistance comes in at the high of 384.29 made on April 4, 2022. This is below the 2022 high of 402.66 made on January 4, the date which marked the all-time high for the S&P 500. Closes above both highs are required to confirm a reversal of the current bear market. Then Tesla must close above its all-time high of 414.49 of November 4, 2021.
The series of lower highs made during the past ten months of 2022 after Tesla reached its all-time high in 2021 represent formidable resistance. Very aggressive buying would be required to move Tesla into new high territory. In my view, this is remote.
Bearish Moving Average Setup
The next problem for Tesla is that it has moved into a bearish moving average configuration on the daily charts. Although the so-called golden and death crosses (50 day simple moving average above or below the 200 day simple moving average) mean nothing, the more important cross is the 100 SMA above or below the 200 SMA. Currently, the the 100 day SMA stands at 261.48 which is below the 200 SMA of 281.61. If Tesla is to become a bull market contender again, the 100 SMA must move above the 200 SMA. For this to occur, Tesla must trade above its 100 SMA for a period of months. If this transpires, a reversal of the bearish trend may be in the cards. On the other hand, if the fifty week SMA (290.50) crosses below the 100 week SMA (265.77) Tesla’s bear market would be baked in the cake.
Dismal Performance Against Indices One Year to-Date
Friday’s closing price of of 214.44 is at the same level as it was in mid December 2020. The one year to-date performance of Tesla as of October 21 is a dismal -28.04%. This is substantially below the one year-to-date performance of the S&P 500 -17.48%, the equal weight S&P 500 -15.94% and remarkably slightly below the Nasdaq 100 of -27.00%. Additionally, the current one year to-date performance is by far the worst performance of any year since Tesla became a public company. Prior to 2022, 2016, was the worst (-10.94%).
Dismal Performance Against Auto Manufacturers One Year To-Date
After being the market leader in the one year to-date time frame against all potential competitors, Tesla has now slipped to number four and is barely ahead of number five, Tata Motors. One Year to-Date Stats: Race -16.13%, Ford -26.34%, Honda Motor -26.47%, Tesla -28.04%, Tata Motors -28.21, GM -40.08%.
Weakness Off The Fifty-Two Week High
As of Friday’s close, Tesla is off 48.26% from its fifty-two week high, Ford -52.08%, GM -47.92%, Race (Ferrari) -32.43%. In short, Tesla is not showing leadership from its fifty-two week high and is as weak as Ford and GM.
Rally October 14- October 21 Indices + Automotive
Indices: During the rally of the past week, the S&P 500 gained 4.66%, S&P 500 Equal Weight +3.64%, Nasdaq 100 +5.63%, Nasdaq 100 Equal Weight +4.80%
Automotive: Rivian +11.18%, GM +6.42%, Tesla +4.61%, Ford, 4.46%, Race +4.29%
Again, Tesla is not exhibiting leadership in the rally. It was barely ahead of Ford and Race and was outpaced by Rivian and GM. Although Tesla kept pace with the S&P 500, it underperformed the Nasdaq 100 last week.
When stocks are strong they exhibit relatively shallow pullbacks and outperform during rallies. Clearly, Tesla is not conforming to this pattern. Another important point: At market cycle highs, the leaders in that cycle make their all-time highs at that time and afterwards many become multi-year/decade laggards. This was the case of Cisco and Intel during 2000, two highly dominant and profitable companies. Twenty-two years later, they have yet to exceed their 2000 cycle highs.
Never buy securities in bear markets. Wait until they exhibit strength against their industries, sectors, competitors and at least one major market index in a variety of time frames.