Tesla Running Out of Juice, Analysis Shows

NEW YORK (TheStreet) -- As an active trader, I enjoy watching volatile stocks and Tesla (TSLA) tops the list lately. I've written about Tesla recently, and you can read the two most recent articles here and here.


Make no mistake about it, though, the articles aren't about trading. Traders watch charts to make decisions; fundamental information, including P/E ratios and profitability, play little or no role. If you're an investor with a buy-and-hold strategy, I'm talking to you because you're the type of investor who does care about profitability and return on investment.

The distinction between the two is notable, because Tesla's moves up or down during the few days after publication doesn't mean I'm right or wrong. Besides, I'm not in the predicting-the-future business; I'll leave that to the fortune tellers. I am in the probability-predicting business, and I don't use star alignment and palm reading for that.

To predict the chances of a price movement, I use historical events that share similar characteristics. As Mark Twain articulated, "History doesn't repeat itself, but it does rhyme." Based on that observation, Twain could have fared well trading stocks. Why technical analysis works well for those who take the time to understand it is because it often measures crowd behavior.

There is nothing magical about lines and circles on a stock chart until you take it to the next level and use the information to gauge market sentiment and emotion in relation to other information, such as short interest and forward earnings estimates.

Few, if any bought Tesla stock because of its earnings report. Operationally, the company once again lost money, and that's with a massive $7,500 effective price-tag reduction, courtesy of the tax payer. It wasn't enough, and it's not likely to be enough in 2013 to raise the automaker into the land of profitability from selling its product.

Yes, people were buying shares like crazy after the earnings report. That's called a short squeeze, and it's not going to last for long. The short squeeze started because too many writers were tripping over themselves to report that Tesla made a profit. Unfortunately for many readers, the alleged stock gurus trumpeting Tesla's illustrious story were either too lazy to read, didn't understand what they read, or didn't care what the earnings report and future guidance stated.

For many, temporary and difficult-to-replicate accounting sleight of hand is just as valuable in creating profit as is profit from the actual manufacture of products. Fortunately for them (and not so much for investors), bubbles tend to persist long after they reasonably should pop. I guess that's why we have bubbles in the first place, because reason and logic get tossed out the window and replaced with passion.

Emotionally, Tesla is a stylish car that is stunning to look at, and based on reviews, fun to drive. Emotionally, you may pay more for a Tesla because people often use emotion to drive their purchasing decisions and subsequently justify it with (any) logic.

Using emotion to buy a car is acceptable, if you're comfortable with the depreciation and costs of the purchase. But if your objective is to make money by investing, leave your emotion in the garage and allocate your capital using logic and historical odds. If you still want to buy Tesla, just put your order in for $75 and let it sit.

By the time (and it likely will be within a few months) the stock reaches $75, the emotional attraction should diminish enough that you will want to pull that order and wait for a lower price, which it likely will reach also.

DISCLOSURE: Author does not hold a position in any stock mentioned.

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.

Robert Weinstein currently blogs, mentors traders, and writes several weekly columns in Rocco Pendola's Option Investing newsletter from his home in northern Wisconsin. Robert tends to focus on the psychological importance of goals, risk mitigation, emotion, and relatively short term market exposure. With nearly 30 years of studying and investing experience, Robert has experienced the many ups and downs in the financial markets and uses the knowledge gained to maintain balance. Robert believes the best way to make money investing is to avoid losing it. The best way to avoid losing is to know what emotional traps lay in the path of investors and learning how to avoid them. Robert is a voracious reader of financial related books often completing more than one book a week while not trading or writing. Robert contributes to his blog at paid2trade.com on a regular basis with an emphasis on studying behavior finance.

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