Since last week, Tesla Motors Inc (NASDAQ:TSLA) shares have started to indicate an upside exhaustion, stretching its strong rally off the early-December low to almost 45%. The impressive seven-week move has stayed inside a steep bull channel with only little in the way of pull back. However, now The Street believes Tesla’s shares are on the verge of a healthy pullback.
Nearby support levels likely be tested
Tesla Motors Inc (NASDAQ:TSLA) mounted a powerful breakout two weeks after holding a major support near the $178. On December 13, the stock climbed almost 3%, triggering another rally that took the shares well above the summer highs. The stock left behind layers of support during this bull phase.
Now, nearby support will likely be tested with momentum easing dramatically. About a week ago, a very powerful support zone was left in place after the stock took out the $240 area. This is a key level to watch ahead of Tesla’s February 8 earnings report. Further, upside for the automaker is possible in the near-term, but it may be very limited, notes The Street.
Patient investors could be presented with a lower-risk entry opportunity ahead of earnings. A decline back down to the $241 to $237 area would retest a very strong support zone, including the August, June and March highs of last year. “A fresh base here would give the stock a much-deserved rest,” says The Street.
Trump must be factored in Tesla valuation
In a separate note on Tesla, investors have been advised not to include Trump in Tesla’s investment Thesis. Tesla shares have hiked about 40% since December 2016 possibly on the support of a relationship between President Donald Trump and Elon Musk. This puts the automaker in a perfect position to take benefit of the upcoming policies, but Morgan Stanley thinks that investors should not just purchase the stock based on the newly formed relationship.
During pre-elections, the partnership between Trump and Musk appeared highly unlikely. Musk, even went on to say that the President is not the right person for the job, given their opposing views on the global warming. But, during the election campaign, Trump vowed that he would bring manufacturing jobs back to the United States.
The President has seen Tesla Motors Inc (NASDAQ:TSLA) CEO’s visionary ideas, and his capability of building made-in-USA products. Musk is one of the only two CEOs of an American company that are part of both Manufacturing Job initiative and Strategic and Policy Forum.
Morgan Stanley’s Adam Jonas, who upgraded Tesla to Overweight and hiked his price target to $305, thinks that this does not make any impact on Tesla’s investment thesis. As per Jonas, the “advisory relationship” of Musk with Trump may involve working in three key departments: Transportation, Energy and Defense, thinks Jonas. “While the extent of such potential work is as yet unknown, it is likely not part of the Tesla investment case,” the analyst said.