Tesla Inc. (TSLA) is trading higher by more than 10% in Tuesday’s U.S. session after being added to the S&P-500 index, effective at the open of trading on Monday Dec 21. The move caught market players and true believers asleep-at-the-wheel after the S&P Dow Jones Indices committee snubbed the EV manufacturer in September. CEO Elon Musk is currently in quarantine after testing positive for COVID-19 and hasn’t commented on the inclusion.
Tesla Bulls Hoping For New Highs
Bulls hope the addition marks the start of a breakout but index changes usually trigger one-day ‘events’, rather than sustained trends in either direction. It looks like price action has already settled into a trading range between 440 and 462, which has technical implications going forward. In addition, the stock has just reached the midpoint of the two-month trading range, lowering odds for a rapid ascent, especially after mixed Q3 earnings in October.
Tesla’s SEC-mandated 10-Q recently disclosed that capital expenditures will increase to the $4.5 billion to $6.0 billion range in the next two fiscal years while cash flow is expected to exceed spending. As the document notes “our business is now consistently generating cash flow from operations in excess of our level of capital spend, and in the third quarter of 2020 we also reduced the use of our working capital credit facilities. We expect our ability to be self-funding to continue as long as macroeconomic factors support current trends.”
Wall Street And Technical Outlook
Wall Street consensus has deteriorated in reaction to historical share gains and uneven quarterly performance, with a ‘Hold’ rating based upon 9 ‘Buy’ and 10 ‘Hold’ recommendations. A stomach-churning 9 analysts now recommend that shareholders close positions and move to the sidelines. Price targets currently range from a low of just $40 to a Street-high $578 while the stock is now trading about $60 above the median $382 median target.
Tesla posted an all-time high at 502 just one session after the Aug. 31 five-for-one stock split and entered a symmetrical triangle pattern. The news gap triggered a triangle breakout but price action has already entered a test at new support so we’ll have to wait because a failure swing is possible. The 435 to 440 zone marks the line-in-the-sand between bulls and bears in this scenario while resistance at the September high near 462 has already repelled buying interest.
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