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Chart of the Day: Is Tesla About to Be Annihilated?

Published 12/13/2022, 08:41 AM
Updated 07/09/2023, 06:31 AM
  • Tesla has lost 52% of its market value this year
  • On the technical chart, we see three consecutive bearish patterns
  • Could Tesla's fallout be equally aberrant to its meteoric rise?
  • Tesla (NASDAQ:TSLA) is a global company best known for its electric vehicles (EVs), but it also generates income from other sources, such as energy storage and regulatory credits.

    In 2021, the Austin, Texas-based behemoth had a net income of $5.51 billion, marking a 665% increase from its net income of $721 million in 2020. This growth was primarily due to the success of the company's car business, which has finally become profitable after 17 years, and the sale of regulatory emissions credits.

    Tesla earns these credits by producing EVs instead of gas cars, and gas automakers can buy them directly from Tesla if they fall short of low- and zero-emission production requirements. In the second quarter of 2021, Tesla generated around $344 million in revenue from these credits. However, this source of income may eventually decline as other automakers begin producing their own EVs at scale.

    Rivian Automotive (NASDAQ:RIVN) is an electric vehicle (EV) startup that designs, manufactures, and sells high-end electric SUVs and pickup trucks. The company recently started delivering units of its first model, the R1T electric pickup truck, and is planning to deliver its second model, the R1S electric SUV, later this year.

    Rivian is considered one of the world's most technologically advanced and promising EV makers. The company has received significant investments from Amazon (NASDAQ:AMZN) and Ford (NYSE:F) and has partnerships with the likes of Campbell Soup (NYSE:CPB) and outdoor retailer REI. Some analysts believe Rivian's innovative technology and partnerships make it a strong contender in the EV market and a potential "Tesla-killer."

    Tesla Daily Chart

    We see three consecutive bearish patterns: a double top and two flags.

    A rising flag is a range created by early bears who lock profits after a sharp drop and new bears who want to ride the downtrend. The downside breakout completes the pattern, demonstrating that sellers are willing to reduce offers to find more demanding buyers at lower levels. That breakout is expected to trigger a technical chain reaction and repeat the flagpole, the initial selloff.

    The first flag's expected move is a $115 decline from the $225 breakout point, targeting $110. The second flag's implied target is another $60 drop, as the supply-demand balance statistically gets sucked into a series of market orders from the $190 breakout, indicating a $130 target.

    However, there is something much more worrisome happening.

    Tesla Weekly Chart

    From this point, we realize that the triple bearish chart is merely a tiny part of a much larger pattern - an ominous H&S pattern so large it is scary. This pattern encapsulates buyers' capitulation. The left shoulder and head are the rising peaks in the uptrend. The right shoulder, peaking below the head, is the failure to sustain the uptrend.

    Statistically, an H&S top repeats its height below the breakout. However, this H&S is at such a large scale relative to its initial ascent that a follow-through would almost erase its entire uptrend's gains. The height is nearly $200, suggesting a potential return to $18.

    Naturally, this target challenges the principle upon which it stands. In other words, it sounds ludicrous. However, there are promising statistics in defense of this body of knowledge. The performance above the S&P 500 buy-and-hold for tops was 19% for tops, and for bottoms, 25% (Bulkowski, 2000). The failure rates for both top and bottom formations are meager. Only 10% failed a 10% gain or more from bottoms, and 18% failed a 10% gain from tops.

    However, tops of such an abnormal scale are something I have never seen before, which made me think that they are market aberrations in the artificial economy, a decade of QE followed by pumping unprecedented stimulus of COVID policy.

    But if the setup was an aberration, does that not mean that the fallout could be equally aberrant?

    Moreover, Tesla's stock positively correlates with another freak, Bitcoin.

    Tesla Vs. Bitcoin Daily Chart

    Observe the meteoric rise and fall of BTC. Here is my analysis of BTC, predicting the beginning of the year of its virtual wipeout. Remember, at the time, consensus - institutions included - called for $100K, $250K, and $1M in the "to the moon" frenzy. Bitcoin is now valued at almost a third since my call.

    Moreover, here is my article on the relationship between the two assets.

    In conclusion, technical analysis is a statistics-based analysis. Its practitioner attempts to gauge the balance of supply and demand. I don't know the future. I don't know that Tesla is going to its 2017-2018 prices before the cataclysmic rise, nor should you trade that way. A trader must account for the complete picture. Accordingly, I marked potential bullish strongholds to incorporate into your outlook (Support lines).

    Trading Strategies

    Conservative traders should wait for the price to fall below the Nov 22 low, then rise to confirm newfound resistance before shorting.

    Moderate traders would short if the price rebounds toward the $200 resistance (Oct low-Nov high + psychological round number) and demonstrates resistance. Alternatively, upon the rally that follows, the next dip below the Nov 22 low.

    Aggressive traders could enter a contrarian long, relying on the Nov 22 support, taking advantage of its proximity, before joining moderate peers with a short.

    Trade Sample - Contrarian Aggressive Long

    • Enter: $168
    • Stop-Loss: $165
    • Risk: $3
    • Target: $198
    • Reward: $30
    • Risk-Reward Ratio: 1:10

    Disclosure: The author does not own any of the securities mentioned in this article.

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Latest comments

Good technical analysis!
Current price on Friday, selling at 50% higher vilume, sort of indicates aberation to be the norm for this stock in coming days. Only time will tell ….
Put chain of events spread them out ….
Rivian will fall to a least Tesla starting price back in when it started like 14 buck or less 😂
200 is still below original 688 sweet bottom. 720 800 1045. original Bad entrance to stock. I believe long term is 1850. After filtering Thriugh the rich class order. into New Paradigm. Financing and 25 daily lead income. Choices while Driving producing metrics delivery Life saving Intuitive Metrics while you drive. Essentially Driving as New Subcontractor and Possibly accredited with mid term New Trainning moduals for added skill sets. New Age Financing. And Doge coin Essentially Backed and follows same Incline. 2.00 to 12.00. 25 million New Job market Graduates Favilitating New Mindset Middle Class 5 to 10 years. Starting With 4.9 million 2024. And 25 . It's a New Economic School . Will be the Anti Influincing And Anti Mind Control Alternative assisting you From being Controlled and allowing Greater freedom and Personal Gains of Creativity invention Solutions Within your Journey. This is not a Stock. Lastly the Gigafactory is already 21 to 15 times already paid for. Beg. 25.00
You fail to include that Rivian is down 80% this year. lmfao 😂😂😂
Mr. Cohen, how could the downfall of a direct competitor be irrelevant to your thesis? Regarding you are analyzing Tesla, you shouldn't ignore the performance of the electric automotive sector as a whole to try to separate Tesla performance in particular. Thank you for your work and your time
 The post is entitled "Chart of the Day".
The focus is on technical analysis: not fundamental, macro, quantitative, or technical analysis. Also, I never made the point that TSLA's losses indicate its future trajectory but the pattern of its losses. The competitor does NOT have that pattern, AND it's already back at its lows, whereas Tesla has a very long way down. Between the two, the competitor has all the advantages, technically.
Very good Technical Analysis.Keep up the good work
Thanks, Shaiju.
funny how Musk buys Twitter and then the talking heads flip on Tesela....just saying
"Talking heads?..." flip?" It's funny how people feel comfortable forming opinions strong enough they're confident about expressing them before doing their homework.
Mr. Cohen I think you are assuming too many things from Mr. Sailor comment. He is freely speculating and sharing his feeling. No homework needed to be allowed to share our impressions. No need to be an analyst to freely and respectfully share our impressions. No need for your permission for that. Thank you anyway for your time and effort
Rivian will be annihilated.
Yes, sir.
amazon has fallen 50% and nearly all other tech stocks too. so tesla is just one among others
I didn't make the point that the losses thus far indicate the future.
 Not the first time I'm reading a comment that makes no sense to me.
China recovery will soon or later.. Take the time to fix Twitter. Bad deal.
If a recession is immenent. The massive wealth loss alone will take a large number of Tesla buyers out of the market
China re-opens creating a ferocious amount of pinned up demand. Telsa is popular in China as is are the holy Iphones.  There are a lot of electric vehicles available in China but the culture does stick with their favorite brands and Tesla benefits.  I don't see China reopening putting a cap on inflation so the order of events: China reopens, demand for products takes off, inflation takes off again, Powell has to rein that in with rates and here comes the recession.  Tesla rises again and falls again.
So we dumped to 52 week low what now? Elon is dumping his own shares, the question is why
Because he overpaid for an unprofitable website AND managed to *******it up even more! And most of his other projects are embroiled in scandals, lawsuits, and bad press. Elon is struggling to maintain relevance, but his best days are definitely behind him...
 what a ridiculous statement. Don`t know what`your talking about.
Have a look at the Tesla chart right now, and you know why I don't like to take contrarian trades
That's absolutely correct but I also noticed or at least it feels like statistical outliers meaning unlikely moves, happen more often than they you expect them to
Sorry for bad grammar
 hence my second statement.
Maybe this guy doesn't understand that Tesla is a company that makes billions in profit every quarter in a continually growing market and Bitcoin is a figment of people's imagination. You can't even start to compare them.
 Sorry. You don't understand technical analysis. You're right about the shorter the time frame, the more noise, but it's the only discipline that gives you a gauge for such spans.
Feels like ad hominem. I am still not convinced
 Do you know what ad hominem means? Convinced about what? I said you don't understand TA, didn't try to convince you of anything.
Because one needs a chart to tell them that having a CEO insult half the population is bad for business..
you shouldn't post while having EDS problems.
No, one needs a chart to consider the trajectory as oppose to an ad hominem argument.
going back to 200, other things coming online for Tesla plus don't doubt Elon
Looks like we got a Tesla fanboy! Musk is the biggest charlatan in modern times. All you have to do is listen to what he says, then compare it to the results (or lack thereof) 3-5 years later and it's not hard to see. Oh and btw, Tesla won't keep stacking billions and billions in profit. They aren't top dog in EVs for much longer. We'll see him crumble within the decade.
Oh look! There's a Musk fanboy. Madoff was a success until the cards came down. Boring has done nothing of consequence. SpaceX blows up as many rockets as it launches. Were it not for Russian shenanigans, they wouldn't be able to secure those government contracts. And Tesla is successful only until other companies get their own production online. Then their distinctiveness will evaporate.
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