Starting at their 2014 price peak, shares of Tesla Motors (TSLA) - Get Report began their first major price consolidation phase. Ironically, this was when all the company's proverbial battery cells were firing perfectly, with nationwide charging stations coming on line, 5-star satisfaction ratings being awarded, and Model S cars appearing everywhere. In addition, new models were introduced, including rumors of an SUV (coming to market now). This provides yet another example that the fundamentals of a company often have little to do with the behavior of its stock. What does affect the direction and amplitude of a company's stock price is the crowd's emotions/mood/sentiment toward the company and/or its prospects.
The weekly bar chart of Tesla shown above reveals the pattern since early 2013, when the first consolidation after the company's IPO mania ended, and what Ralph Nelson Elliott referred to as the "recognition" wave began. This is when the herd recognizes that the dream (or nightmare, depending on the direction) has become reality, and herd members (the crowd) rush to join the party, which in Tesla's case was a bullish one.
From the March 2013 low, near $34, the next impulsive growth pattern began, which eventually took the company's price to the $290 all-time high. The consolidation since the 2014 peak is one degree of trend higher than the 2010-2013 period (which brought prices down to $25 from $40, a Fibonacci 38% decline), so we must expect more amplitude this time around from high to low. Thus far, the first consolidation period's maximum amplitude has not yet been exceeded since the current consolidation period began in 2014, but it has been matched at the March low this year, near $180. However, that occurred within only six months of the all-time high, which is dramatically shorter than what should follow a huge four-year rally. The decision support engine suggests that awaiting at least a more symmetric time duration is prudent, something like 27 +/-3 months. This would put the ideal "time window" for Tesla's final low in December 2017.
As for the final price window, the $170 +/-$10 zone appears to have a high probability of being tested (red arrow path to the intersection of the light green and bright green boxes). This would allow the lower two-standard-deviation band (olive/gold band near $179) to act as reasonable support. Additionally, it would also allow the stochastics to repeat the multiple bottoms pattern, like they did into the early 2015 low, near $180, which led to the sharp rise to retest $290 in July. Ideally, these two components, among others, within the decision support engine's pattern recognition algorithm, will align at the same time, triggering a high-confidence buying opportunity.
Notice there is another red arrow path, as well. That one anticipates a deeper correction toward $140 +/-$10, which wouldn't change the expectation of $500 by 2020, but only create a bit more complexity in the path to it. Until the decision support engine warns that selling actions are no longer appropriate, whichever support level that Tesla reaches by the time the next buy signal is generated is less important than realizing that the stock is under a selling actions only warning at this time. Until this condition changes, buying is suboptimal, period! This is because when a company's stock is in a selling condition, surprises in stock price behavior tend to occur in the downward direction (similar to what has been happening in recent weeks and months in GoPro, Chipotle Mexican Grill and many others).
Patiently awaiting an objective buy signal should result in a huge reward for your discipline. This is because once the consolidation at this degree of trend is mature, pricing of Tesla should not only move well above the $290 level, but also the $500 level, too. That forecast is derived through combining the internal wave guidelines of Elliott Wave and Fibonacci theories, where the third wave at this large degree of trend should rise between 290 and 470 points. If the current consolidation reaches all the way down to the $140 area, the multiyear rally that is scheduled into 2020 would reach between $430 and $610. Here's when understanding the larger pattern becomes important in having the staying/planning power to create real wealth.
The decision support engine's bottom line: Since buying actions are not currently indicated, if you're long, use $215 as a protective sell stop to avoid serious damage to your capital. Also, if given the chance, exit into $240. If you're flat, use either parameter to consider establishing short exposure (using $271 as your protective buy stop). If you're already short, maintain or add to exposure using these parameters, as well.
It shouldn't be very much longer before the next great buying opportunity arrives for Tesla Motors. Prepare yourself.
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This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.