Sink or Swim Time for Tesla

Tesla Inc. (TSLA) has underperformed badly in the first half of 2021, posting a 12% year-to-date decline. Of course, that’s no big deal after 2020’s historic 839% return but don’t tell that to shareholders who took exposure in December or the first quarter of this year. Those folks, in particular, should pay attention to the ticker tape in coming weeks because the stock has entered a critical phase that could dictate performance into 2022.

Bearish Descending Triangle

The stakes are high because the current pattern is carving a bearish descending triangle that favors a breakdown and decline into November 2020’s unfilled gap between 412 and 433. However, that prediction will come off the table if the rally that started in May can mount tough resistance centered at the 650 level. Fortunately for bulls, accumulation has remained strong since the stock topped out in January, giving them a good shot at blasting through that barrier.

CEO Elon Musk’s erratic comments about Bitcoin and other cryptocurrencies aren’t helping the stock’s performance because many institutions have taken positions in the last year and are looking for conservative accounting that just isn’t possible, given high volatility in digital assets. In addition, the company is now a SP-500 component that’s been public for more than a decade, forcing them to compete for capital with other blue chips, rather than at-home speculators.

Wall Street and Technical Outlook

Wall Street consensus is mixed after last year’s outsized share gains, with a ‘Hold’ rating based upon 15 ‘Buy’, 1 ‘Overweight’, 11 ‘Hold’, and 3 ‘Underweight’ recommendations. More importantly, 6 of 36 analysts covering Tesla recommend that shareholders close positions and move to the sidelines. Price targets currently range from a low of $67 to a Street-high $1,471 while the stock is set to open Monday’s session more than $100 below the median $725 target.

Tesla mounted the February 2020 high at 193.80 in June, entering a multiwave uptrend that topped out above 900 in January 2021. The stock then sold off to the 200-day moving average at 558.79, marking the first leg in a descending triangle that will post a second lower high if the current uptick reverses at or below 650. A test at the trading floor in the mid-500s could easily fail if that happens, yielding a breakdown that potentially sheds an additional 125 to 150 points.

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Disclosure: the author held no positions in aforementioned securities at the time of publication.