It will be interesting to see how the stock price reacts when Tesla reports its Q1’19 earnings. The surprise is not it will report a loss, but how big is the loss. More importantly, the answer to the following questions will most likely impact the near term stock price; what is the next quarter expectation, will the losses be continued into the following quarters, what is the number of vehicles (specifically model 3) delivery expectation for China and Europe in the coming quarter, and what is the rest of the year’s outlook?
As we wait for clarity to the above questions, let’s do a some technical analysis on Tesla’s stock chart and see what it is telling us about the near term price movements.
From the weekly chart, we can see TSLA stock price has been fluctuating between 248 and 387 for more than two years (shaded area), and the stock price is currently sitting just slightly above the bottom of this price range.
Looking at the daily time frame, it shows TSLA stock price is being very respectful to the declining trend line. The last four times the price came up to this trend line, it got rejected and reversed back down. Now, the price has moved back up near this trend line, will it get rejected for the fifth time? There are three possible price movement scenarios; 1) move up and break above the trend line, 2) move back down to the bottom of the 2+ years price range, 3) move up to the trend line and get rejected back down once again.
If the scenario is for the price to break above the trend line, how high will the stock price move in the near term? And if the scenario is for the price to head back down, how low will it drop in the near term? Since TSLA is schedule to report earnings next Wednesday, we can get some ideas on where the price might be headed for either direction by looking at what the options market has priced in for Tesla’s earnings.
Based on the most recent closing prices, the options market has priced in approximate +/-8.5% or +/-$23, and this will result in a price range between approximately 241 to 286.
To determine how realistic this price move might be, we will look back at what the stock price did 10 days after Tesla has reported its earnings from the last ten earnings report periods.
From the last ten earnings reporting periods, there were three occasions where the price went up more than 9% on the tenth day after reported earnings, and the other seven reporting periods where the price went down less than 9%. On those periods where the price went up, the percentage of increase were 9.81%, 18.17% and 20.07%. The least amount of decrease from those negative periods was -0.03%, and the largest amount of decrease was -8.05%.
Base on the last ten reporting periods, the positive 9% priced in by the options market appears to be realistic and wouldn’t be surprised to see price move more than 9% if the market view the report to be positive. And the negative 8.5% seems to be the extreme if the market viewed the earnings/forward guidance to be negative.
I personally do not like to trade through earnings, but if I were to carry a position through earnings, I would look into selling the May 5, 2019 220 PUT for under $2.00. In order for the stock price to move below 220, it has to decrease by almost 20% from the last closing price of 263.90, that is almost two times the 8.5% move priced in by the options market. If I were to sell those PUT options, I would also be willing to buy the stock at 220 if it was assigned to me.
Here is the video version of this pre-earnings look at TSLA stock:
