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Trading Tesla as Shares Slump on Earnings Miss

Tesla is pulling back after the company missed on earnings. Will the decline be short-lived? Let's look at the charts.

Tesla  (TSLA) - Get Tesla Inc. Report shares weren't exactly collapsing the way the bears would have hoped, down less than 3% on Thursday after reporting earnings.

However, the stock was showing some vulnerability after such a stellar run.

Shares are up 175% over the past six months and 650% over the past year. Even from its breakout in September, Tesla shares are still up 67%.

Thursday’s dip is surprisingly shallow to some investors. While the company reported its sixth-straight quarterly profit, it missed analysts’ expectations. Further, operating margins contracted year over year.

As a result, there’s a mixed feeling around Wall Street, particularly after such a massive run in the stock price over the past few months and quarters. It’s also left analysts feeling mixed as well.

Let’s look at the charts to see what’s going on.

Trading Tesla

Daily chart of Tesla stock.

Daily chart of Tesla stock.

After temporarily breaking below the 21-day moving average, Tesla stock is bouncing hard off this level. From a trading perspective, this type of action looks great.

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However, bulls will need to see the stock reclaim the 10-day moving average to maintain Thursday’s strong reaction.

If it can reclaim this level, look for Tesla to fill the gap back up toward $860, potentially putting the highs in play near $900.

I know it sounds crazy, but this is Tesla that we’re talking about — virtually anything is possible.

Should the stock take out its current all-time high, a move up toward $1,000 is in the realm of possibility, while the 423.6% extension sits all the way up near $1,060.

Tesla becomes interesting if it can’t reclaim the 10-day moving average from here. In short, that would put the 21-day moving average back in play, as well as Thursday’s low at $801.

Should it lose the $800 level, we could be looking at a correction. The question is, how big will it be?

I would have my eye on the $755 area first, where the VWAP measure comes into play. Below that puts the 10-week moving average on the table, followed by the $700 level and the 50-day moving average.

I realize that is a wide range between $700 and $755. However, with Tesla specifically and stocks in general, when a trend comes to an end, the correction can be fast and furious. There’s no way to know exactly what level will hold, so it’s best to have an idea of multiple potential support levels.