(Bloomberg) — A rare streak of tranquility in Tesla Inc. shares is about to end, as investors brace for three crucial events over the coming six weeks that could bring back the wild swings often associated with the electric-vehicle maker’s stock
In less than a week, the Elon Musk-led company will report second-quarter delivery results, followed by earnings later in July, and the unveiling of its self-driving vehicle — also called robotaxi — in early August. Options trading data show that investors are positioning for a move of around 15% in either direction through mid-August, according to data compiled by Citigroup Inc.
But, strategists say the shares could see much more turmoil than that. “Tesla options are underestimating volatility across these three upcoming catalysts,” Citi’s equity trading strategist Vishal Vivek said in a note to clients. These events have triggered big stock moves in the past, including for Tesla suppliers and other EV makers, Vivek said.
“Considering how important Tesla’s deliveries have been in the past, how the much the stock moves on earnings and the potential for a new product line announcement at the robotaxi day, the 15% move implied between now and the Aug. 16 expiry seems low,” he added in an interview.
Tesla shares have been trading within a pretty tight range since early May after gyrating earlier in the year. The stock remains below its 200-day moving average — a longer-term trend indicator that traders pay close attention to — but a sharp move higher this week signals a potential for change.
That’s boosting optimism among some investors. “While the intermediate-term period of consolidation and downtrend remains intact for Tesla since 2021, the short-term picture has begun to improve markedly in the last two months,” said Mark Newton, global head of technical strategy at Fundstrat Global Advisors.
Analysts’ estimates for the company’s second-quarter deliveries have been coming down rapidly, and along with that the expectation for both profit and revenue. Yet, some argue that Tesla’s troubles around selling its vehicles are widely understood, so that barring a heavy miss, the shares can actually rally once the figures come out.
Traders have taken an increasingly bullish stance on where Tesla may find its shares toward the end of the summer. Options traders have bid up the price of calls that eye a 10% rally and expire in two months relative to the cost of equivalent puts. That dynamic signals rising interest to chase the stock higher, coupled with fading desire to hedge a dive down.
The real test for the stock, however, will be the unveiling of the company’s robotaxi in August.
As Musk tries to re-position Tesla as an artificial-intelligence company, rather than just an EV maker, a lot is depending on the August event. Tesla shares currently command a hefty premium that’s towering over all other mega-cap technology stocks, even that of the market’s favorite AI-play, Nvidia Corp.
That pricey valuation is underpinned by investors’ faith in Musk’s ability to successfully transform Tesla into a dominant AI player. The robotaxi reveal will be a pivotal step in that direction.
As such, correctly predicting how the push and pull of these catalysts will play out over the coming weeks is tough. But technical strategists recommend watching some key levels to understand whether the stock is breaking out in one direction or the other.
“On the upside, a rally above the $206 resistance, which is a convergence of its February peak and the 200-day moving average, would mark a breakout and act as the next incremental positive for the stock’s trend,” said Ari Wald, head of technical analysis at Oppenheimer & Co. That would mean a 4.3% jump from Tesla’s Thursday close of $197.42.
On the other hand, any decline that takes the shares below their shorter-term trend-line of the 50-day moving average will be notable. It would require an 11% drop from the stock’s last close for that to happen.
While it is hard to predict what the next few weeks have in store for Tesla, “what I can say with more certainty is that these events are likely to end the recent period of relative calm in the stock price,” said Adam Sarhan, founder and CEO at 50 Park Investments. “Positive surprises could fuel a rally, while disappointments might lead to a selloff.”
—With assistance from Carly Wanna.
©2024 Bloomberg L.P.
