Weekly Investment Idea
Last Friday, Tesla’s share price dropped by -6.42% as bears breached $700. Shares of the company were dragged down by a massive sell-off in global stocks following Fed Chair Powell’s announcement of aggressive monetary policy tightening in an attempt to lower inflation. At its policy meeting in June and July, the Fed is expected to hike rates by 50 basis points due to worries about inflation.
Last week Tesla was kicked out of the S&P500’s ESG Index, due to the companies, “lack of a low-carbon strategy” and “codes of business conduct,” along with racism and poor working conditions reported at Tesla’s factory in Fremont, California. Tesla’s CEO and Free Speech advocate called the ESG metrics, the “Devil Incarnate”, as it turns out the S&G may have more weight than the E, in ESG, as oil and gas multinational Exxon Mobil is still included in the list.
As a result of its removal from the S&P 500 ESG Index on Thursday, Tesla lost about $66 billion of its stock market value on Friday, opening up downside pressure for the company. On Friday, Nasdaq dropped -3.41% as the bears gained momentum below the 12200 level, a 17-month low, indicating a general bearish sentiment in tech stocks.
An increasing number of lawsuits continue to pose a major obstacle to Tesla’s success as the controversy surrounding Elon Musk, casts a dark shadow over the company. Meanwhile, Tesla is facing supply chain issues, which could lead to a suspension of orders on some vehicles in the near future.
Tesla (TSLA) broke below the 700 support, a level last traded in August 2021 with a close at 663.9. The breakout to the downside is reinforced by the Bollinger Band (20). Price closed outside of the lower Bollinger Band and has the potential to trade lower towards the 550 support, coinciding with the 18-month low if price fails to reclaim the 700 level. The MACD indicator shows a trend shift towards a bearish outlook as the volume reading turns increasingly negative. A cross-over of the MACD moving averages below zero may reinforce the bearish sentiment in the near term. However, if bulls manage to reclaim the 700 level upside gains remain capped by the 7800 level and 900 level coinciding with the Bollinger Band baseline (yellow moving average).
Tesla stock plunged more than -6% making a fresh low at 638.00 after breaching the 700 level. The trend is capped by a bearish outlook as indicated by the RSI reading far below the 50.00 level. The current trend hasn’t reached exhaustion and the possibility to trade lower, is elevated since the sentiment is not yet extremely bearish. Upside gains are capped by the Williams Alligator indicator which is used as a dynamic resistance by professional traders. A break above the 900 level may signal trend change and an area that may attract bulls’ participation once again.