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Trade of the Week: Trading Tesla’s Bearish Trend

  • 19.03.2025 16:43
  • moneymorning.com
  • Keywords: Tesla, Bearish Trend

Chris Johnson highlights Tesla's bearish trend driven by declining fundamentals, technical weakness, and investor sentiment. He suggests a long-term options trade targeting price declines to $175 and $150 over 3-6 months, advising against short-term strategies.

Tesla NewsTSLAsentiment_dissatisfied

Estimated market influence

Tesla

Tesla

Negativesentiment_dissatisfied
Analyst rating: Neutral

The article discusses Tesla's bearish trend and provides a detailed analysis of its fundamentals, technicals, and trading strategy. It mentions the company's revenue decline, negative earnings per share trends, and significant stock price drop.

Context

Analysis of Tesla's Bearish Trend and Market Implications

Key Facts and Data Points

  • Stock Performance:

    • Tesla stock is trading at 52% below its all-time highs from December.
    • The stock has dropped 37% in May 2022 and another 53% after breaking the 20-month moving average.

  • Fundamental Issues:

    • Revenue growth has turned negative, with single-digit growth dipping into negative territory.
    • Earnings per share have been below analyst expectations for 5 out of the last 6 quarters.
    • A potential accounting anomaly of $1.4 billion was reported by Financial Times.

  • Technical Analysis:

    • The stock broke through its 20-month moving average, entering a long-term bear market trend.
    • Currently in a "Dead Cat Bounce" after hitting oversold conditions on March 10, with a 13% rally since then.
    • Short-term technicals (50-day moving average) remain in a bearish trend.

  • Trading Strategy:

    • Trigger Price: $225
    • Target Prices:
      • First target: $175 (22% decline)
      • Second target: $150 (33% decline)
    • Suggested options trade: September 19, 2025 expiration on the $225 put for approximately $3,650 per contract.

Market Trends and Business Impact

  • Shift in Investor Sentiment: Investors are losing faith in Tesla, with significant selling pressure from board members, Musk's brother, and institutions.
  • Increased Competition: Traditional automakers like GM and Ford have shifted focus to EV production, impacting Tesla's market dominance.
  • Bearish Technical Momentum: The breakdown of key technical levels (20-month moving average) indicates a prolonged bear market trend.

Competitive Dynamics

  • Rising Competitiveness: New entrants and traditional automakers are intensifying competition in the EV market, affecting Tesla's sales growth.
  • Strategic Considerations: Investors should consider longer-term trends and not rely on short-term bounces for trading decisions.

Long-Term Effects and Risks

  • Potential Price Targets: The stock is projected to reach $175 and potentially $150 over the next 3-6 months.
  • Options Trading Risks: While options provide leverage, they carry significant risks and are not suitable for all investors.

Conclusion

The analysis highlights a perfect storm of negative fundamentals, technicals, and sentiment driving Tesla's bearish trend. Investors should be cautious and consider long-term strategies to capitalize on the potential decline while understanding the associated risks.