Beware Of Tesla’s Latest Dead Cat Bounce

This is the time in almost any quarter when a flurry of analyst notes are published trying to forecast Tesla’s deliveries and production and therefore how it performed in the quarter. There are competing scenarios that sales will be fine but weaker in the second half of the year since the U.S. Federal tax credit is about to be cut in half from $3,750 to $1,875 to the outlook is solid due to the company’s technology and product pipeline. It is always important to understand the fundamental story on a company for its stock, but the technical chart of the shares can indicate which way they may move.

Since Tesla’s shares hit a high of $376.79 on December 13 investors have experienced 9 dead cat bounces. On March 13 I wrote that investors should beware of a dead cat bounce in Tesla’s stock which was the day before the Model Y’s official revealing when the stock was trading around $289. It had recovered from a drop to $276 the week before but was down 23% from its then recent high of $376.79 on December 13.

The stock traded flat on the day the Model Y was driven onto a stage to cheers from Tesla bulls and employees but fell over $14 the next day to $275.43, as investors were disappointed in the announcement. It continued to slide for about 10 days to $260.42, but then recovered to $289.18 on April 1 as it touched its declining lower highs line.

It subsequently rolled over and except for three other mini-rallies cratered all the way down to a closing low of $178.97 on June 3. As can be seen in the five-year chart below on June 3 the shares reached a support level that went back to 2015 and 2016.

The shares were also in a very oversold position on June 3 indicated by its RSI or Relative Strength Index substantially below 30 in the top portion of the charts. This has helped the stock to rally 24% and close at $221.86 on Friday.

The stock is now in the middle of its declining channel of about $200 to $240 and has reached about a neutral oversold vs. overbought position as seen in its 54 RSI. While there is the potential for the stock to rally some more, it should also face technical resistance around $240. It will need to break out of the channel and stay above $240, as that has now become resistance for the shares.

Unless Tesla’s delivery, production and therefore cash flows can significantly improve, the stock could easily return to its pattern of lower highs and lower lows.