Chart of the week: my new target for Tesla shares

Both target areas for Tesla set by John Burford in August have now been achieved. Here’s what he thinks will happen to the shares next. 

Tesla has been following my road map - down

Investors and traders have certainly been treated to unusually exciting sessions in recent days. The huge volatility in sterling and the share indexes have been good for day traders but a nightmare for normal investors.

But this recent turmoil in politics and in the markets is a clear symptom of the severity of the bear markets that are progressing.

With that in mind, I am turning to Tesla Inc (NASDAQ:TSLA), which is a share that is not immune to the global bearish forces now at work.

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The latest quarterly earnings and financial data for Tesla will be released on Wednesday this week. That data is always closely watched for clues to future performance of the share price.

I do not place great store in the detail contained in these releases. Of course, many analysts do make a career out of poring over the minutiae of the figures – and many investors follow them and even base their investment decisions on their work.

Although a 'surprise' may affect the price movements for a very limited time, they rarely affect the current price trends as established earlier. It is my contention that except in rare cases, apart from a shock data point (such as a much higher/lower earnings figure than expected), almost all of the information about the company is already in the share price.

For a company the massive size of Tesla, many insiders will somehow already know (or infer) that there is a shock figure to be released – and some way that gets out to a wider audience, 

My last COTW on Tesla was on August 22 (Is It Time To Take Tesla Profits? ) - days before the 3:1 stock split.

I concluded that the share price was very likely turning lower – most likely in a sharp decline.

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My analysis showed that the recent rally had taken the price up to a significant resistance level at $310 (split adjusted) and odds were high that it would not break above it before tumbling lower.

This is what I wrote then (again, prices referenced have been adjusted to take account of the 3:1 share split): “Last week's rally took the price to the Fib 62% retrace on a good mom div which I have as the top of wave 'c' of 2.

Provided that high can hold, the shares will be in one of the most destructive bear phases in a wave 3 of 3 down. That level at $320 is now my line in the sand.

My first major target is $284 and then $200. Only a sharp move above $320 would force me back to the drawing board.”

This was the chart I posted then:

Past performance is not a guide to future performance.

So, did the share price continue higher to continue the rally off the May low? After all, it was already in a solid three-month rally and the most logical expectation was for the price to move even higher – perhaps to test the upper tramline. After all, we are all taught to be trend followers in Investing 101 classes, aren't we?

The stock had just split and this is usually a bullish signal where it is expected the mass of smaller accounts would then pile in, unable to buy when the price was three times higher.

Thus, my call for a reversal in a sharp decline from that point was certainly highly contrarian.

This is the chart updated:

Past performance is not a guide to future performance.

It did try one more time to push above the critical pink zone but failed and from 20 September it fell hard from $314 to Friday's low at $204 – a loss of 35% in less than four weeks.

Both target areas I had set in August have been achieved.

I had mentioned in August that any investor able to short Tesla would have made out very well – as did normal investors who have avoided a very large loss since then.

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For some investors, I know that Elon Musk has a halo round his head as the shining leader of the electric vehicle revolution and a champion for space flight. And for many, they will never sell their shares because of their faith in his vision of the future.

But for investors who consider share investing just as a means of wealth creation for themselves and their families, they never 'marry' a share. For them, share ownership is just a means to an end.

So now, with the share price just dipping below my pink support zone, my next target is on the lower tramline around the $185 area. Of course, short-term traders can consider taking at least some profits on their shorts here for a very tidy 'quickie' gain.

John Burford is a freelance contributor and not a direct employee of interactive investor.