Markets, Twitter, China, or the Chinese economy all played a role in Tesla stock's decline in trading.
Regardless of the reasons for the share price drop, the stock chart suggests there is still a lot of pain to come.
At under $171 a share, Tesla is down another 5.5% in Monday trading. There was a 0.6% decline in the S&P 500 and a 1.1% decline in the Nasdaq Composite. As a result of Monday's drop, Tesla shares are down roughly 51% for the year.
Katie Stockton, Fairlead Strategies' founder, is a market technician who examines stock charts to identify levels of support and resistance. Tesla stock has some support at $166, according to Stockton.
That's not a fundamental call based on how many cars Tesla will sell. By looking at stock charts and stock chart patterns, you can discover what fundamentally-minded investors think of a stock without knowing any fundamentals.
There are two types of patterns: bullish and bearish. Breakouts from previous ranges indicate something positive is happening.
This is what happened to Tesla shares at the end of 2019. There was a breakout in the stock. During this period, the company began producing consistent profits and free cash flow. The stock of Tesla rose more than 740% in 2020.
Stocks had another strong year in 2021, returning roughly 50%. In January 2022, shares of the company were trading at more than $400 a share. Now the shares are trading at about 56% of their 52-week high. There is something wrong with the chart, according to investors.
Global economic conditions may be to blame. From its 52-week high, the Nasdaq Composite is down 32%. Investors could also be concerned about EV demand because of price cuts in China.
It doesn't matter what it is, the stock chart still looks weak. According to Stockton, if shares break $166, they will head down to $150.
In the downdraft, 22V Research's head of technical strategy John Roque says shares could go as low as $100. He doesn't base his call on fundamentals. He is reading the chart.
The problem with richly valued growth stocks is that after growth buyers get spooked, value buyers don't arrive for a while. It doesn't matter what the economy looks like, value buyers are willing to invest in stocks because of their attractive price.
Tesla stock trades at about 31 times estimated earnings for 2023. Since the depths of the pandemic, the PE ratio has been at its lowest level. However, the S&P 500 trades at 17 times estimated earnings for 2023.
At Roque's $100, shares would trade for a little less than 17 times the broader market. Getting a company like Tesla for below the market multiple would be too hard for too many investors to pass up. That's not how he came up with his target, but getting Tesla for below the market multiple would be too hard to pass up.
In 2023, Tesla's sales are expected to increase by 44% over 2022.
Whether Tesla stock ever reaches that level is anyone's guess. There is no way to know for sure what level Tesla stock needs to reach to be attractive enough, regardless of the company's or industry's problems. The market must change or the company must change for Tesla stock to recover.
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