Tesla cars at one of the auto maker’s super-charging stations.
Andrew Caballero-Reynolds/AFP via Getty Images
The Tesla selloff turned into a bloodbath briefly Monday, leaving dazed bulls are searching for where the stock will bottom out, when the selling will finally be done.
Tesla shares (ticker: TSLA) bounced back with the rest of the market to close Monday trading. That offered some relief. Looking ahead, investors should keep a couple of moving averages in mind when thinking about where Tesla stock is headed in the short run.
Shares of Tesla were down 9.8% to $851.47 at Monday’s lows. They bounced back, up more than $78, to close at $930, a 1.5% drop. Nearly all stocks rebounded, but Tesla fared worse than the S&P 500 and Dow Jones Industrial Average —both of which were up 0.3% on the day. The Nasdaq Composite Index rose 0.6%.
It was, frankly, a wild day for markets. The Dow was down more than 1,000 points at one point—and it has never closed positive after being down at least 1,000 points, according to Dow Jones Market Data. The Nasdaq Composite was down 4.9% at its low. It posted the largest comeback to close into the green since Oct. 10, 2008, when the index was down 6.2%, but closed up 0.3%.
Monday’s action adds to the wild recent ride for Tesla stock. Shares started the year like a rocket, soaring 13.5% in the first trading session after fourth-quarter deliveries smashed expectations. The company delivered almost 309,000 vehicles; Wall Street was expecting roughly 270,000.
But then rising interest rates, inflation. and macroeconomic fears started to drag down high-growth stocks. From that first trading session though Monday, shares are down about 22%. The Nasdaq Composite was off about 12%.
Nothing seems to be fundamentally wrong. Rising rates simply hurt fast-growing stocks more. Growth companies generate most of their earnings and cash flow far in the future—and that future cash flow becomes worth less in today’s dollars when discounted back at a higher rate.
With fundamentals apparently not the problem, Tesla stock is in the hands of the traders who—oftentimes—look at charts and patterns to determine when a stock has fallen too deep.
Tesla looked in trouble after shares fell below both their 50-day and 100-day moving averages last week. Moving averages are one of the important metrics used by traders. A stock can find support at one moving average but also can have trouble breaking through another one when shares are rising.
With Tesla at $930 a share, the next significant benchmark on the downside is the auto maker’s 200-day moving average of about $810 a share. There are many other technical indicators to watch, but that moving average is key for investors to watch in coming days. It should be the worse-case scenario for shares if the selling hasn’t stopped.
Tesla stock’s 100-day moving average is about $960. If shares can punch through that, then they could head back above $1,000. The stock’s 50-day moving average is about $1,050. That could represent the next level of resistance in an up market.
Tesla is set to report fourth-quarter earnings on Wednesday evening, and a beat could stem the tide of recent selling pressure. Analysts are projecting Tesla to earn about $2.30 a share, and the highest estimates are nearly $3. Anything close to that number should give the stock a boost. Tesla’s growth is so steep, a comparison with the year-ago fourth quarter isn’t meaningful, but the company earned $1.86 a share in the most recent third quarter.
Of course, the market could stop dropping too. That would ease the pressure on Tesla stock as well.
Write to Al Root at allen.root@dowjones.com
