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Dennis Dick & Joel Elconin

Joel’s introduction to trading was in the Standard and Poor’s 500 Index futures pit at the Chicago Mercantile Exchange. Also, during his time at the CME, he was involved in Index Arbitrage as well...

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Tesla Reaches Key Technical Level

Tesla Motors (NASDAQ: TSLA) shares have made a strong recovery from its November 26 low (116.10). In Thursday's trading, the issue has rallied over 40.00 off the low to reach 158 before retreating to the 155 level.

The entire area (155-160) is technically significant for two reasons. First of all, 155 marks the 50% retracement of its decline (194.50-116.10), which is a key level for many technical traders. Secondly, the 160 area was an area of major support for almost three months during TSLA's attempt to reach 200. On many occasions, former areas of support (once breached) will provide similar resistance when the issue returns to the designated area.

Of course, the absence of unexplained fires in its models and Wall Street analysts laying off the issue has contributed to the rally. In fact, once the low was in place, a well-timed reiteration of a Buy rating by a Jefferies analyst coupled with a reiteration of an Overweight rating and $153.00 price target by Morgan Stanley on December 3 sent shorts scrambling for cover.

Another factor for the rally was the company's announcement that Germany's Federal Motor Transit Authority concluded its probe of fires and that no further measures were deemed necessary. As a result of this favorable decision, renewed favorable coverage of the issue by Wall Street analysts and the vastly oversold technical conditions TLSA was able to rally 30 points thus far in December.

Since a disappointing earnings release accelerated the decline in TSLA, it will be interesting to note whether or not its next earnings release will validate the recent surge in price. With the issue trading at a very high multiple, it will need to provide evidence that paltry sales are increasing while having a lasting effect on the long-term profitability.

Posted in: Movers & Shakers Technicals Intraday Update Trading Ideas General