
Sell Tesla, Drive Off With Your Profits
Tesla Motors (TSLA) - Get Report is what TheStreet'sJim Cramer refers to as a "cult" stock, a stock that moves untethered to a company's valuation or fundamentals.
So it is no surprise shares of the electric car maker have climbed from a low of around $203 on May 12 to a recent high around $240 on Wednesday. Shares closed Thursday at $229. Even with this decline, the stock is still up some 13% from the May 12 low.
If you want to hang on for the ride, go ahead. But if you want to take some profits now, the charts back you up.
They suggest a fall to below $220 is possible. So why take the chance on an even bigger decline, especially with allegations of safety concerns denied by Tesla Thursday.
Shares are down 4.5% so far on the year, compared with a 3.5% rise in the S&P 500 (SPX) . Then there's the matter of valuation. The stock is priced at a forward price to earnings ratio of almost 300, compared to a P/E of 17 for the S&P 500 index. It trades at 17 times the rest of the market.
Since the stock is not tied to fundamentals, as Cramer noted, look at the technical metrics. The chart below, courtesy of TradingView, says the next level of support is $218.
The stock peaked in early April at around $267. The shares have reversed as much 24% to around $203. From this move, we can determined that $203 or $204 is a solid area of support (bottom blue arrow), especially given the stock's strong bounce back above both its 50-day and 100-day averages.
But shares are beginning to pull back although still up 62% in four months. The valuation concern, when compared to the S&P 500 index, won't help the stock, which still needs time to consolidate back to its 20-day average of around $218 (top blue arrow).
To paraphrase Cramer, if you like Tesla, buy the cars and sell the stock.
This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.










