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On paper, electric-vehicle maker Tesla (TSLA) has the makings of becoming a strong performer yet again for the new year. As Barchart content partner The Motley Fool explained, TSLA stock has been “on a tear in recent months, and the biggest catalyst is the incoming Trump administration, as the policies of the President-elect are expected to favor Tesla.”
Further, the article pointed out that the “end of rebates and tax incentives for electric-vehicle (EV) customers would benefit Tesla as the industry leader.” Not surprisingly, Wedbush analyst Dan Ives is optimistic about TSLA stock, anticipating that the underlying company will reach a market capitalization of $2 trillion sometime this year.
A significant fundamental tailwind is President-elect Trump’s close relationship with Tesla CEO Elon Musk. Ives believes that the incoming administration will fast-track full self-driving (FSD) initiatives, effectively greenlighting the EV manufacturer’s robotaxi agenda.
Still, some concerns exist. Over the past six months, TSLA stock gained almost 75%. However, in the trailing week, shares slipped more than 7%. With an ugly chart pattern about to be printed, investors may want to consider the short side of the trade.
Patterns and Trends Imply Near-Term Bearishness for TSLA Stock
One of the biggest concerns that stands out from a visual point of view is the technical formation of TSLA stock. At the moment, shares appear to be in the middle of forming a head-and-shoulders-like pattern, which may have negative near-term implications. Roughly speaking, mid-November may represent the first shoulder, with mid-December representing the head.
If this assessment is accurate, a second shoulder may form, possibly around where TSLA’s 50-day moving average stands now. Should the red ink continue to fly, it wouldn’t be out of the question for TSLA to eventually drop toward its 200 DMA.
The other headwind that’s quite glaring is the statistical trend. Using Barchart’s Historical Data, I analyzed the performance of TSLA stock on a monthly basis; that is, the percentage difference between the first day of the month against the last day. Since April 2023, there have never been more than two consecutive months of positive returns.
In contrast, between December 2019 through March 2023, there have been four instances — for a total of 16 months — where there were at least three consecutive months of positive returns. While it’s not a guarantee of anything, this statistical trend suggests that the bulls may be tiring. Frankly, I don’t think it’s a coincidence that a chart pattern similar to a head and shoulders has emerged.
This isn’t to suggest that TSLA stock is a long-term shorting opportunity. Over an extended period, Musk’s newfound political power and influence should help cement Tesla’s dominance over the rapidly burgeoning EV sector.
Still, no stock goes up indefinitely without encountering some resistance and TSLA is no exception. Given that the equity appears overbought, intrepid speculators may consider a bearish options strategy.
An Enticing Proposition for the Gambler
Admittedly, for a short trade to make sense, the aforementioned head-and-shoulders pattern must indeed materialize. If such a pattern does not form, then the thesis would likely fall apart. This is a high-risk, high-reward opportunity.
What does tempt the gambler, though, is the upcoming earnings report. Scheduled for release on Jan. 22, 2025, investors will want to see enough substance that justifies metrics such as a forward price/earnings ratio of over 209 times and a 13.85X revenue multiple. If the justification isn’t there, TSLA stock could tumble, at least temporarily.
With that said, options traders may want to spotlight the 355/350 bear put spread for derivatives expiring Jan. 24, 2025. At time of writing, this transaction involves putting $125 at risk for the chance to gain $375 or a payout of 300%.
Granted, the reward is outsized because Barchart identifies the probability of profit at 20.9%. From a stochastic perspective, this assessment might be accurate. However, contextually, the appearance of the head and shoulders offers an opportunity for the bearish contrarian.
