Is TSLA Ready To Run Again?

One of the most memorable short squeezes I've seen in the past couple of years was in Tesla Motors (TSLA) back in early 2013. I still remember its momentum run from 40 bucks to almost $200 like it was just yesterday. Even more memorable were the constant short calls by fundamental traders because of its "excessive" valuation. It's one thing to pass on a stock because it doesn't fit your trading style (a la Warren Buffet during the Dot Com Bubble), but to actually short a high growth, momentum-driven stock simply because it trades at a hefty multiple is simple a bad strategy in my opinion. I'm not saying I believe fundamentals are useless. In fact, I believe in the long-run (10+ years), stocks are indeed driven by earnings growth and other fundamental catalysts. But I just don't understand how some of these guys on TV so confidently profess to short TSLA without price confirming their fundamental thesis. Price is the final arbiter, as @JBoorman would say. Or, only price pays, as @alphatrends says.

With that little rant out of the way now, I'd like to share some quick thoughts of mine regarding TSLA from a longer-term perspective. Let's jump straight to the chart. As you can see from the weekly chart below, TSLA corrected 40% back in late 2013. After the 40% haircut, TSLA proceeded to make new all-time highs, running up over 128% from lows. TSLA saw a similar correction earlier this year, pulling in 33% from its recent pivot highs at $265. To a simplist like me, it would appear that TSLA may be setting up for another leg higher. 

TSLA, weekly chart

One thing that I noticed was this most recent correction was not only slightly smaller in magnitude but it took a longer period of time as well (assuming last month's low are indeed the lows). To me, this suggest that a second up leg may be more of a grind higher and longer in duration as well. 

Now, I've been messing around with different ways of producing upside targets. None of these are full proof and they shouldn't be considered concrete price targets. In addition, it can be difficult to apply percentage moves as a stock's price increases, since it has to move many more points for an equivalent percentage move. I'm just trying to get a general idea of how high the stock could reasonably run. The first method: after the 40% correction last year, TSLA ran 36% above the prior pivot high (which had been the all-time high). If TSLA were to run 36% above the current all-time high ($265), that would take the stock to $360.

TSLA, weekly chart (method 1)

The second method: I just decided to put some fib extensions on the chart. As you can see from the two weekly charts below, TSLA stalled out at the 161.8% Fibonacci extension before its recent 33% correction. Currently, the 161.8% fib extension sits around $320. I guess that's simple enough. 

TSLA, weekly chart (method 2)

TSLA, weekly chart (method 2)

The third method: TSLA runs 128% like it did the last time it corrected! This is the most simplistic and perhaps the most glib method (although not unreasonable over the long haul). 

I guess you could say that TSLA is relatively weak considering the Nasdaq Composite is less than 1.5% from all-time highs and QQQ recently made new all-time highs while TSLA is over 22% from its all-time highs. Perhaps it's time for some catch up? 

What I have surmised from this cocktail-napkin technical analysis is that it is very reasonable to believe that TSLA not only makes new highs soon but it may very well run above $300 a share. Other factors suggesting TSLA may see another leg higher include strong fundamentals as well as its high short interest (which is still over 26% according to finviz). @jfahmy did a nice job recently laying out some of his reasons that he still likes TSLA as well here. On a more intermediate basis, a strong move above 212-215 would trigger a long for me with a daily stop loss below $200. If/when this happens, I will be sure to send out a message on StockTwits and Twitter. 

Please let me know if you have any questions or comments below. 

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