Tesla Inc (NASDAQ: TSLA ) CEO Elon Musk has developed something of a (well-deserved) reputation of overpromising and underdelivering. This past week, though, Musk gave Tesla stock holders a pleasant surprise, beginning production of the mass-market Model 3 a couple of weeks before schedule. The first production models of the electric vehicle could be delivered to buyers before the end of the month.

Still, fans and followers of TSLA stock are having a tough time figuring out what to do. Is this good news already priced into the value of Tesla shares, or will traders reward the company for the progress with another round of bullishness.

As I’ve been saying all along, it’s the stock dictating the rhetoric rather than the rhetoric dictating the price of Tesla stock. That will change in the future as Tesla becomes more like a “normal” company. For the time being though, you’re still better served by looking at TSLA shares through a technical analysis lens.

In that light, the recent meltdown of Tesla shares should come as no real surprise, nor is it a reason to panic.

Tesla Drop Is Right on Cue

The recent whipsaw action from Tesla stock more or less jibes with the headlines. The rally since mid-May was largely driven by the advent of the mass market Model 3 … its lofty production targets to be specific. Musk continued to contend the company would be able to produce half a million of them in 2018, and investors believed him.

The rhetoric took a turn for the worst in late June though, albeit for no particular (good) reason. That’s when on-road sightings of the first Model 3’s were first reported, the company’s vehicles were deemed unsafe by German regulators and Tesla turned the keys on its interesting but ill-fitting solar shingle business.

Of course, those events were mostly an excuse for profit-taking, which was going to happen then regardless of the surrounding circumstances … more on that in a moment.

Most recently, doubts expressed by Goldman Sachs accelerated the selling effort. Analyst David Tamberrino lowered his price target on Tesla stock to only $180 per share — and underscored his “sell” rating — on the heels of disappointing delivery figure for the second quarter. Infamous short-seller Andrew Left fanned the bearish flames by jumping on the bearish bandwagon on Wednesday.

Calling a spade a spade though, it wasn’t necessarily the news that was in the driver’s seat of the recent rollover from TSLA shares. A closer look at the chart suggests the move was going to happen where it happened no matter what. Traders were just waiting for the right catalyst, up to and including a “buy the rumor, sell the news” scenario. They finally got it.



Click to Enlarge Take a long look at the weekly chart of Tesla stock at right. It has been marked up to highlight something very specific. That is, the $100 span (give or take) of the trading range Tesla shares were stuck in between 2014 and 2016 is essentially the same distance of the move that unfurled once the upper edge of that trading range — the ceiling at $286 which became a floor after April’s thrust — was broken.

The two horizontal channels are, as one could reasonably expect, the same height of roughly $100. Once the upper boundary of the upper channel was touched, it was defined by a brief period of consolidation followed by a decisive pullback.

Looking Ahead for Tesla Stock

There’s a silver lining to this stormy cloud. That is, since the chart itself has behaved so predictably, we have good reason to expect that predictability to persist.

In that light, we have to assume that the former ceiling around $286 is apt to act as a floor. That leaves room for a little, though not a lot, more downside from where we are right now.

That premise is bolstered by another nuance of the Tesla stock chart. Take a look at the volume bars. Specifically, take note of how the green, bullish volume bars have been getting taller since the beginning of this year. At the same time, notice how modest the red, bearish volume bars have been thus far in spite of the stock’s sharp pullback. Given the scope of the pullback, it’s interesting how many investors have NOT bailed out.

Obviously there are never any guarantees, and if the $286 mark fails to hold up as a floor, then all bets are off — that could open the floodgates. As it stands right now, though, we have no reason to think the stock won’t muster the same bullish reversal it has mustered several times since late 2013.

As of this writing, James Brumley did not hold a position in any of the aforementioned securities.