The price action in Tesla shares tells us just how erratic the stock market has become and in particular Tech Stocks. It appears that the activity of SoftBank buying call options in these tech stocks has played a huge part in the ‘melt up’ in stock prices along with the ‘Robinhood’ traders. 

Have Tesla shares reached a bottom? 

On a fundamental level the stock is still trading at 100 times 2021 earnings estimates. Is that warranted for Tesla shares? Some will argue yes as the forecasted earnings are set to double from 2020 to 2021 and sales are forecasted to increase by 33% for that period too. Is that premium too large for the expected growth? 

It wasn’t so long ago that the likes of Google were trading at those multiples with a similar growth story … so there will be arguments for and against from a fundamental level and we will only get the right answer when we start seeing estimates for 2022 earnings come through. Cn they keep up that growth rate? If and when the growth rate starts to slow, so will the valuation multiples.

What do the technicals say about Tesla shares?

The chart indicates that the 50 day moving average (purple line) may give it some much needed support at $330. Also the 38.2% Fibonacci looks like it may provide some support around yesterday’s closing price. 

Support:

However if this support does not hold next support is as follows:

Support 1: $273 (17% lower)

Support 2: $237 (28% lower)

Support 3: $167 (49% lower)

Resistance:

On the upside if support holds at these levels..an upside $400 (21% higher) target to fill the recent gap is on the cards. 

As technicals (not fundamentals) played a huge part in the rise of Tesla shares … they will also play a huge role in where it settles. Shareholders of Tesla will be hoping that this support area holds. If it doesn’t …… it could get a lot uglier for the share price of Tesla in a very short period of time. 

Happy Investing 

Stephen 

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