Tesla Motors Inc: Buying On Current Dip Doesn’t Make Sense

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Tesla Motors Inc (NASDAQ:TSLA) shares have declined more than 10% over the past week. The stock plunged 2.65% yesterday to close at $207.32. As early as March 4, shares were trading above $254. That doesn’t mean its long-term bull run is over. Tesla has a lot of long-term potential as the company starts operations at its Gigafactory and bring mass market vehicles.

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No reason to buy Tesla on this dip

But Dorsey Wright & Associates co-founder Tom Dorsey says that the stock has to decline about 30% from its current levels to offer an excellent entry-point. Technical analysis of the stock shows multiple sell signals. From a supply and demand perspective, there is no reason to commit new money at this point and buy the stock. But a 30% drop will take Tesla to where it was more than two months ago.

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Tesla Motors Inc (NASDAQ:TSLA) shares soared a whopping 63% over the first two months of this year. Strong Model S deliveries and better than expected quarterly results improved investor confidence. The announcement of the Gigafactory was another big driver. However, it has lost more than 16% this month. Auto dealers have opposed Tesla’s direct sales model. As many as five states have banned the company from selling its cars directly to consumers.

Tesla stock will be completely oversold at $148

Mr. Dorsey says the Palo Alto-based company’s long-term prospects are still bright. But investors should resist the temptation to jump in on this dip. The recent weakness has tripped many “sell signals” over the past two weeks, including Thursday when the stock fell below $208. Dorsey says he will feel comfortable buying the stock when it falls to $148. He said that the stock will be completely oversold at that level.

Tesla Motors Inc (NASDAQ:TSLA) stock was last oversold in November 2013. After that, the stock more than doubled in the next three months. For the long-term, Dorsey Wright & Associates are Neutral at current levels.

Tesla Motors Inc shares ticked up 0.14% to $207.60 in pre-market trading Friday.