Tesla's cratering stock could see a 'wash out' move

  • Tesla shares hit a 2 1/2-year low on Thursday morning.
  • A “wash out” move in the stock could be coming before a “decent sized bounce,” according to one Wall Street strategist.
  • But another Tesla watcher says there are no signs of exhaustion by the sellers and that shares could fall to $US141.
  • Watch Tesla trade live.

Tesla‘s plunging stock could be setting up for a bounce.

Shares of the electric-car maker gained as much 3% Thursday morning after reports said CEO Elon Musk sent a letter to employees on Wednesday evening saying demand for its vehicles remained strong. They were little changed at 10:25 a.m. ET.

“As of yesterday, we had over 50,000 net new orders for this quarter,” Musk said in the email.

“Based on current trends, we have a good chance of exceeding the record 90,700 deliveries of Q4 last year and making this the highest deliveries/sales quarter in Tesla history!”

Shares of the electric-car maker fell more 2% early Thursday, hitting a 2 1/2-year low of $US186.23, before reversing into positive territory shortly after reports of Musk’s email crossed the wires.

And according to one Wall Street strategist, the rally could just be getting started.

“We could still get one more “wash-out” move in the stock … down to the next support level I mentioned (of $US180),” Matt Maley, a managing director and equity strategist at Miller Tabak, told Markets Insider over email. “However, it is oversold on both a short-term and an intermediate-term basis. Also, it’s short interest is very high,” he added.

Almost 30% of the shares available for trading have been borrowed to short the stock, and traders betting against Tesla have raked in more than $US1 billion of profits so far in May.

“When you combine this with so many different Wall Street analysts throwing in the towel on the stock this week, we have a situation where Tesla is becoming washed-out,” Maley said. “Therefore, I think it is ripe for a decent sized bounce.”

But not everyone on Wall Street is so sure.

“Momentum is negative and there are no signs of downside exhaustion yet, so there is risk of a breach of the $US180 level in another breakdown,” said Katie Stockton, the founder and managing director of Fairlead Strategies. “Should this occur, with no relief provided by oversold conditions, the next targeted support level would be approximately $US141.”

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