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Asset Watch
Thursday, November 14, 2024
As the post-election surge pushed the S&P 500 above 6,000, Tesla became one of the most popular stocks on Wall Street once again. And as CEO Elon Musk donated $130 million to Republican candidates during the election process, investors and analysts expect Tesla to benefit from his monetary gestures.
If the prediction proves accurate, how can you reap the rewards and while managing risk?
While he maintained his ‘base case’ $310 price target, Morgan Stanley analyst Adam Jonas said on Nov. 12:
“Investor perception of Tesla’s CEO has shifted significantly over the past week, with Elon Musk’s public support for President-elect Trump positioning him as a prominent voice in the incoming administration…
“Over the next four years, we expect to see Tesla’s [total addressable market] aperture expand to far wider domains, many of which are not included in buy-side or sell-side financial models for the company.”
He said his ‘bull case’ of $500 could occur if EV sales hit ~8 million units per year, ~400-gigawatt hours are deployed through energy-storage systems, and a combined ~$146 a share comes from Tesla’s software, services, and Full-Self-Driving technology.
If you analyse the horizontal white line on the right side of the chart, you can see that Tesla soared following the election results. However, due to the immense volatility, you should pay attention to a few key levels to assess the risk-reward outlook.
The 5 and 10-day moving averages are solid trend indicators when trading Tesla. If you focus especially on the September and October price action, you can see that Tesla hugged the blue and yellow lines en route to higher highs in September.
After a breakdown occurred, the blue line helped keep Tesla down until late October.
Consequently, the outlook is bullish when Tesla trades above both MAs and both lines are rising.
Since Tesla has run so far so fast, it may be wise to wait for the MAs to catch up. The 10-day MA is close to $284, meaning the price must fall a lot before it can provide support. But this should change in the days ahead as the MAs inch closer to the stock price.
Therefore, waiting until both lines are near the stock price increases the chances of a bounce and makes the risk-reward more attractive.
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