Tesla Motors Inc: Lay In Wait For A Buy Signal

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Tesla Motors stock has been in a downward spiral since July, and although it is up very slightly year to date (at least for now, although the increase is dwindling), 2015 just hasn’t been very kind. So where will the EV manufacturer’s stock go next? In all likelihood, the ups and downs will continue, but the near-term trend looks to be downward.

Tesla stock in a downward spiral

The Street contributor Ken Goldberg believes that Tesla shares will continue to fall through next year but then “stage a huge rally to $500.” He analyzed the automaker’s stock chart since early 2013 and noted some interesting patterns.

The markets have rarely, if ever followed the fundamentals when it comes to Tesla. Goldberg notes that Tesla’s “first major price consolidation phase” was following their peak in 2014 at a time when all was well. The automaker was riding high on five-star ratings, rapid expansion of its Supercharger network, and rumors about the Model X, which now is finally starting to roll out of the factory.

Tesla affected by sentiment

There’s no denying that Tesla is an emotional story, as Goldberg notes. Instead of following the fundamentals, the automaker’s shares have been carried along by whatever investors happen to be feeling about it at a particular time. In early 2013 after the end of the “mania” around Tesla’s initial public offering faded, shares consolidated as investors began to realize that the automaker’s potential was beginning to become a reality.

Then in March 2013, shares hit a low of about $34 per share, and then once again, the herd mentality hit and carried Tesla shares up to $290, their all-time high. Goldberg describes the consolidation that’s been happening since the peak in 2014 as “one degree of trend higher than the 2010-2013 period,” during which the automaker’s share price tumbled from $40 down to $25.

Things may get much, much worse before they get better

He believes that the amplitude of the downward trend this time around will be greater than it was then. He further noted that this year’s low came in March at around $180 per share, but that low was within just six months of Tesla’s all-time high, which he says is “dramatically shorter than what should follow a huge four-year rally.”

Referencing the Decision Support Engine, he says it might be good to wait for “at least a more symmetric time duration,” which he sets at around 27 months, give or take three months. He suggests that the ideal time for Tesla to hit rock bottom is in December 2017.

He places rock bottom at around $170, plus or minus $10, which he says faces a “high probability of being tested.” However, he also said we could see a repeat of the “multiple bottoms pattern” like the stock did when it hit this year’s low earlier this year.

He also said there’s a possibility that the correction could be even worse than this at around $140, plus or minus $10. However, he said this doesn’t change his expectation for Tesla shares to reach $500 by 2020. The only thing he said it adds is “complexity.”

Sell only on Tesla?

According to Goldberg, buying Tesla at this time isn’t advisable because he thinks it is in a “selling condition” which means any surprises in its behavior are likely to be downward. He suggests “patiently waiting” for an “objective buy signal” because after the worst of the consolidation is over, he thinks Tesla shares will surpass $500.

Shares of Tesla Motors were down 0.78% at $229.80 per share just minutes before closing bell this afternoon.

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