Tesla earnings beat and trend continuation

After a fourth consecutive quarterly profit and beat on earnings expectations, the Tesla share price has added another 6%. The move furthers the already 280% gain in 2020 and more than 50% gain since the end of June2020.

In terms of the Q2 2020 headline numbers:

Revenue of $6.04bn vs $5.4bn expected (Bloomberg consensus)

Earnings per share (GAAP) $0.50 vs a loss per share of $1.06 expected (Bloomberg consensus)

This year’s gains for Tesla are only second to that of Moderna (pharma) on the Nasdaq100, the 12 months of profitability make the company now eligible for inclusion on the S&P 500 Index as well. The inclusion (should it occur) into the S&P500 Index would imply further buying of the Tesla shares for those Exchange Traded Funds and investments tracking the index.

While Tesla saw a nearly two-month closure of its factory in Fremont California, which is the groups only US car making facility, Tesla’s Shanghai Gigafactory would have benefitted the group with the newly increased capacity at the facility.

Tesla: technical analysis

The trend lines labelled 1, 2 and 3 highlight what has been an enormous trend acceleration for the share price of Tesla since November 2019. Three consecutive steepening trend lines (as illustrated) are often referred to as a ‘Price Blow off’ in technical analysis terms. A price blow off suggests that the upward momentum may have become too exaggerated in the near term and in turn a correction may be nearing.

The upward momentum could see the share move towards the recent high at 1785 and possibly channel resistance at 1900 in extension. So, while the upward trend appears stretched it is still not a signal to trade against this momentum. However, buying into it also offers a relatively poor reward relative to the assumed risk of the trade.

Our preference is to wait for a correction back towards a confluence of gap and trend line support at 1210 for long entry in anticipation of further gains. A break of the trend line labelled 2 would reconsider the long trend bias currently assumed.