Tesla Inc. shares have lost nearly 17% from their recent highs. With Tesla stock now clearly in oversold territory, Is TSLA stock a good buy?
Shares of Tesla Inc (NASDAQ:TSLA), the Elon-Musk led clean energy company fell by 2.5% in the last trading session, closing the day at a price of $319.57 a piece, which marks a 16.7% fall from its June 23 close of $383.45 a share. With Tesla stock seemingly caught in a downtrend, it would be hard to believe that the stock can breakout of this trend. However, there are ominous signs that Tesla stock might have bottomed out for now. In other words, Tesla stock might be headed higher over the next few trading sessions.
Elon Musk's Comments and Clarification
The fall in Tesla stock price in the last trading session can be traced back to a couple of reasons/news report. The first of them was a report which emerged early in the day blaming Tesla's Autopilot for an accident in Minnesota. The fall in Tesla stock price was also accentuated by Elon Musk's comments at the National Governors Association summer meeting, which had taken place over the weekend. As reported by CNBC, Musk said: "I've gone on the record several times that the stock price is higher than we have the right to deserve and that's for sure true based on where we are today." Not surprisingly TSLA stock price fell to $314.18 within the first hour of the regular trading session, a 4.1% fall from Friday's close.
After the first half of the day, which saw the bears hold charge over the TSLA counter, the bulls made a comeback in the later half of the day, as supportive news reports emerged to help their cause. Firstly, the man at the wheel of the Tesla involved in the Minnesota accident went on record stating that the Tesla Autopilot was disengaged before the accident. Elon Musk added to the positive press stating that Tesla stock is overvalued based on past and present but undervalued if you believe in Tesla's future.
I should clarify: Tesla stock is obviously high based on past & present, but low if you believe in Tesla's future. Place bets accordingly … https://t.co/4zbc6vqZSZ
— Elon Musk (@elonmusk) July 17, 2017
Courtesy of the positive news coverage, Tesla stock price had recovered to close at $319.5 for the day, before rising 0.26% higher in after hours trade. With the negative news now clarified, TSLA stock might have even more reasons to move higher over the next few sessions.
Tesla Stock Technical Analysis
A look at the Tesla stock technical chart throws up encouraging signs for the bulls. If charts are what you swear by, there are multiple reasons to believe that Tesla stock might have bottomed out for now. After crashing through the 20-day and 50-day simple moving averages (SMA) during the fall over the last 20 days, Tesla stock recently found support from the 100-day SMA. Having tested the crucial SMA earlier this month, Tesla stock now has a crucial support protecting the downside.
The $60+ fall in the Tesla stock price has sent the stock into oversold territory, at least according to the Relative Strength Index (RSI) indicator. As defined by Investopedia, "The relative strength index (RSI) is a momentum indicator developed by noted technical analyst Welles Wilder, that compares the magnitude of recent gains and losses over a specified time period to measure speed and change of price movements of a security. It is primarily used to attempt to identify overbought or oversold conditions in the trading of an asset." The 30/70 RSI readings are the popular thresholds used to identify oversold/overbought securities, respectively. With the RSI indicator flashing a reading of 27.3 for Tesla, the stock is clearly in the oversold zone. Looking at it another way, Tesla stock could be poised for a rise.
The next bullish signal comes from the MACD (Moving Average Convergence Divergence) indicator, which is yet another popular momentum indicator used by technical traders. The MACD for Tesla is set to make a bullish crossover with the signal line and investors should keep a close eye on this indicator over the next few trading sessions. A successful rise of the MACD over the signal line will strengthen the confidence in the bullish thesis around Tesla stock.
To conclude, Tesla stock has been in a freefall since late last month. However, with the technical charts flashing bullish signals, Tesla stock could be set for a bounce. With the positive news flow coming through, Tesla stock could have found the trigger to rise from this trough in the stock price. While the long term outlook continues to remain challenging for Tesla stock, the short term prospects could be brighter.
Looking for fundamentally strong tech stocks? Check out Amigobulls' top stock picks from the tech sector, which have beaten the NASDAQ by over 146%. Interested in automotive stock? Then, we also have our top picks from the auto sector, which have beaten the S&P 500 by over 222%. If you're a trader though, you should check out our daily trading ideas section for daily, free updates on the latest crossovers and other popular technical signals.