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Tesla cars at one of the auto maker’s super charging stations.
Andrew Caballero-Reynolds/AFP via Getty Images
The
Tesla
selloff turned into a blood bath Monday. Now, dazed bulls are searching for where the stock will bottom out, when the selling will finally be done.
Shares of Tesla (TSLA) were down 9% to $858.53 each in midday trading. The drop is far worse than losses suffered by the
S&P 500
and
Dow Jones Industrial Average
—3.9% and 3.1%, respectively. The
Nasdaq Composite Index
was off 4.9%.
Tesla stock started the year like a rocket, soaring 13.5% the first trading session after fourth-quarter deliveries smashed expectations. The company delivered almost 309,000 vehicles; Wall Street was expecting roughly 270,000.
But then rising interest rates, inflation. and macroeconomic fears started to drag down high-growth stocks. From that first trading session to Monday morning, shares are down about 27%. The Nasdaq Composite is off about 16%.
Nothing seems to be fundamentally wrong. Rising rates simply hurt fast-growing stocks more. Growth companies generate most of their earnings and cash flow far in the future—and that cash becomes worth less in today’s dollars when discounted back at a higher rate.
With fundamentals apparently not the problem, Tesla stock is in the hands of the traders who—oftentimes—look at charts and patterns to determine when a stock has fallen too deep.
Tesla looked in trouble after it fell below both its 50-day and 100-day moving averages last week. Moving averages are one of the important metrics used by traders. A stock can find support at one moving average but also can have trouble breaking through another moving average when shares are rising.
With Tesla below $900 a share, the next significant benchmark is the auto maker’s 200-day moving average of about $811 a share. There are many other technical indicators to watch, but that moving average is key for investors to watch in coming days. It should be the worse-case scenario for shares if the selling hasn’t stopped.
Tesla is set to report earnings on Wednesday evening. A beat could stem the tide of selling pressure. Analysts are projecting Tesla to earn about $2.30 a share, up from $1.86 reported for the third quarter of 2021. The highest estimates for fourth- quarter earnings are almost $3 a share. Anything close to that number should give the stock a boost.
Of course, the market could stop dropping too. That would ease the pressure on Tesla stock as well as the rest of the market.
Write to Al Root at allen.root@dowjones.com