Tesla, Inc. (TSLA) shares closed the first half of 2019 at $222.59, which became a key input to my proprietary analytics. The only level left over from the first half is its annual risky level at $388.02, which is just above the all-time intraday high of $387.48 set on Aug. 7, 2018, now considered a value level. The daily chart shows a “death cross,” and the weekly chart has been positive since the week of June 28, when the stock closed at $222.59.
Fundamentally, Tesla stock is not a long-term investment, but you can counter-trade the volatility. The maker of the electric vehicles and electric vehicle powertrain components recently reported record quarterly deliveries but must accelerate to reach annual goals.
Tesla missed earnings estimates on April 24, and the stock responded by declining to its 52-week low of $176.99 on June 3. Since then, the stock is up a bull market 30.1%. Even so, the stock is also in bear market territory at 40.6% below its 52-week high of $387.48 set on Aug. 7, 2018. The year-to-date loss is 30.8%.
The daily chart for Tesla
The daily chart for Tesla shows that the stock has been below a “death cross” since Feb. 28, when the 50-day simple moving average fell below the 200-day simple moving average to indicate that lower prices lie ahead. The stock was a sell at its 200-day simple moving average that day at $316.36. This tracked the stock to its June 3 low of $176.99.
The third quarter value level is $213.05, with a value level for July at $209.53. Its semiannual risky level for the second half of 2019 is $278.76.
The weekly chart for Tesla
The weekly chart for Tesla is positive, with the stock above its five-week modified moving average of $225.35. The stock is well below its 200-week simple moving average, or “reversion to the mean,” at $273.21. Tesla stock has been below its “reversion to the mean” since the week of April 19.
The 12 x 3 x 3 weekly slow stochastic reading is projected to rise to 39.09 this week, up from 32.13 on July 5. At the June 3 low, this reading was 8.95, with the level below 10.00 making the stock technically “too cheap to ignore.”
Trading strategy: Buy Tesla shares weakness to the quarterly and monthly value levels at $213.03 and $209.53, respectively, and reduce holdings on strength to the semiannual risky level at $278.76.
How to use my value levels and risky levels: Value levels and risky levels are based upon the last nine weekly, monthly, quarterly, semiannual, and annual closes. The first set of levels was based upon the closes on Dec. 31. The original annual level remains in play. The weekly level changes each week. The monthly level was changed at the end of each month, most recently on June 28. The quarterly level was also changed at the end of June.
My theory is that nine years of volatility between closes are enough to assume that all possible bullish or bearish events for the stock are factored in. To capture share price volatility, investors should buy shares on weakness to a value level and reduce holdings on strength to a risky level. A pivot is a value level or risky level that was violated within its time horizon. Pivots act as magnets that have a high probability of being tested again before their time horizon expires.
How to use 12 x 3 x 3 weekly slow stochastic readings: My choice of using 12 x 3 x 3 weekly slow stochastic readings was based upon backtesting many methods of reading share-price momentum with the objective of finding the combination that resulted in the fewest false signals. I did this following the stock market crash of 1987, so I have been happy with the results for more than 30 years.
The stochastic reading covers the last 12 weeks of highs, lows, and closes for the stock. There is a raw calculation of the differences between the highest high and lowest low versus the closes. These levels are modified to a fast reading and a slow reading, and I found that the slow reading worked the best.
The stochastic reading scales between 00.00 and 100.00, with readings above 80.00 considered overbought and readings below 20.00 considered oversold. Recently, I noted that stocks tend to peak and decline 10% to 20% and more shortly after a reading rises above 90.00, so I call that an “inflating parabolic bubble,” as a bubble always pops. I also refer to a reading below 10.00 as “too cheap to ignore.”
Disclosure: The author has no positions in any stocks mentioned and no plans to initiate any positions within the next 72 hours.