Tesla’s charts look attractive as the new year approaches. Here’s why
It’s that seasonal time when we scour over hundreds of charts looking for the best ideas for the upcoming year. To make our best technical ideas list we prefer to see charts that are breaking out of long-term bases, have strong momentum with risk/reward metrics that have clearly defined downside risks and potentially strong upside returns. As a result, we rule out another favorite category of mine which is turnaround stocks. Those are beaten down stocks that appear to be bottoming, have broken long-term downtrends and have a lot to reverse. I wrote about one great example of a potential turnaround stock in General Mills here . After reviewing the charts, I almost cringed at the one that looked best to me – Tesla ! No one stock or company brings out the comments like this one. Whether it’s good or bad thoughts on CEO Elon Musk, the constant talk about its valuation, or the debate surrounding Musk’s pay package – everyone has a strong opinion. Fundamentally, Tesla stock is not about the cars, car sales or anything EV. Ignore those data points and focus on the future. Watch robotics and the continued growth of autonomous driving to pick up steam helping the stock rally along the way. Then there’s Musk. No CEO has delivered for his investors like Elon Musk. With the Washington drama behind him and his return to work, his focus turns to the incentives he needs to hit to get paid. Love him or hate him – he makes his shareholders money. We can do a much deeper dive and debate the fundamentals until we are blue in the face, as a technician it doesn’t impact my process. Currently, there is a risk/reward set-up on multiple time frames that’s too good to ignore. That’s our focus. Let’s examine the stock on multiple time frames to demonstrate the significance of recent price action. The key bullish technical highlights include: A major breakout to new highs Old resistance should act as new support giving us defined downside risk protection Both key momentum indicators in RSI and MACD giving us buy signals and pointing to moves higher Now let’s examine a longer-term chart as a breakout on a longer time frame holds even more significance to a technician. Here is Tesla on a 5-year weekly chart … We see the same key technical themes over the longer-term as we do on the shorter-term basis. This is the bullish confirmation technicians love to see. You can also see that both momentum indicators are not nearly close to the extreme levels experienced as the stock pushed to highs following the election. Again, we have a breakout with momentum and a defined level of downside risk at that old resistance level around $420. Let’s go back even a tad farther — a 10-year weekly chart… This illustrates the giant consolidation phase after the historic run up from 2019 to 2021. This cup and handle formation is one of my favorite patterns. Breakouts from this pattern can give us a targeted upside well into the $600 range. We also know where to limit our downside risk if the pattern were to fail. So, what is the risk/reward? As a former trader, I know that handling the downside risk is up to the individual making the trade. In my work the $420 level is where things could get messy and change my thoughts on this trade. That would be ~13% downside risk. If price action falls to that level my thesis is for naught and we try again. However, the reward looks quite favorable. Our upside target far outweighs the downside risk. Given this set-up on multiple time frames, with strong momentum and rising relative strength the upside targets into the $600 area are likely. That’s an upside of over 25%. We can debate all the merits of the company and their magnanimous CEO ’til the cows come home. For a technician looking for a strong bull case the charts in Tesla are setting us up for one heck of a ride. —Jay Woods, CMT with Chase Games DISCLOSURES: Woods’ family owns the stock. All opinions expressed by the CNBC Pro contributors are solely their opinions and do not reflect the opinions of CNBC, NBC UNIVERSAL, their parent company or affiliates, and may have been previously disseminated by them on television, radio, internet or another medium. THE ABOVE CONTENT IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY . THIS CONTENT IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND DOES NOT CONSITUTE FINANCIAL, INVESTMENT, TAX OR LEGAL ADVICE OR A RECOMMENDATION TO BUY ANY SECURITY OR OTHER FINANCIAL ASSET. THE CONTENT IS GENERAL IN NATURE AND DOES NOT REFLECT ANY INDIVIDUAL’S UNIQUE PERSONAL CIRCUMSTANCES. THE ABOVE CONTENT MIGHT NOT BE SUITABLE FOR YOUR PARTICULAR CIRCUMSTANCES. BEFORE MAKING ANY FINANCIAL DECISIONS, YOU SHOULD STRONGLY CONSIDER SEEKING ADVICE FROM YOUR OWN FINANCIAL OR INVESTMENT ADVISOR. Click here for the full disclaimer.
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