On Wednesday, January 27, electric car maker Tesla (NASDAQ 🙂 will report its fourth quarter 2020 results after the shutdown bell. We expect earnings per share of $ 1.04 on revenues of $ 10.47 billion, versus $ 2.14 earnings per share last year and $ 7.38 billion for the corresponding quarter.
It is clear that expectations for annual earnings per year are significantly lower than last year. So why did Tesla stock set a new record yesterday, with a 4% gain to close at $ 880.80 ahead of the Palo Alto, California-based company's next quarterly report?
A number of reasons. For starters, Tesla's overall success has always been based on trust in the company and its charismatic founder, CEO Elon Musk. Indeed, the same kind of investor – someone who doesn't care about traditional methods of determining measurable value – is probably behind the breathtaking rise of. Jim Cramer, the host of CNBC's Mad Money, has said it is the young investors who are pushing up Tesla's stock as they are willing to pay any price to help Musk realize his dream while being part of the effort.
In addition, if investors were willing to buy stock of the company when it was separated from the fundamentals, why should the electric vehicle manufacturer now, since its Q3 report has published its profitability in a row, why should they not all- in now?
To further strengthen the stock, the EV stable quarter was added to the Index at the end of December, a prestigious club that provided extra cachet and a stamp of legitimacy. In addition, on a more practical level, Tesla & # 39; s inclusion in the broad benchmark also forced fund managers to buy tens of millions of shares to add them to the $ 5.4 trillion in index funds that track the S&P 500.
Tesla's auto deliveries, an important measure of the company that had historically missed its targets, also increased during the fourth quarter of 2020.
Recently, Paul Pelosi, the husband of home speaker Nancy Pelosi, bought up to $ 1 million in stock options in the gamble that Tesla will rise. Now that the Democrats are in the White House and control the majority of the two houses of Congress, he is well aware that green initiatives are high on the agenda of the new administration.
Baird Investment Banking analyst Ben Kallo has doubled his target on Tesla stock with a price target of $ 728 per share, up from his previous call of $ 488. Kallo has upgraded his call based on the expanded The company's production capacity with operations now in Shanghai and new facilities being built in Berlin and Texas. Kallo also predicts that Musk will overhaul his entire venture and merge all of his businesses – including SpaceX and Neuralink – into one.
Following our optimistic call in August, which came true, the dynamics of supply and demand defied our expectation of a decline in December as equity appreciation accelerated. The current market forces indicate a further route that is higher.
Tesla & # 39; s rise to a new record yesterday, ahead of corporate earnings, signaled that investors – including smart money and perhaps even informed money – expect earnings to be better.
The price broke the top of a pennant, extremely bullish after hitting 44% in just two weeks. The bullish implication is amplified after the price sets the pace above earnings. This included a recent breakout of the bullish trade channel, in place since the March low, which occurred ahead of the January 20 presidential inauguration.
The movements confirmed the elevated trend from the low of October 30, before the November 3 general election, which broke out of a symmetrical triangle on November 18. Then, less than four weeks later, it broke out of the Rising channel on Dec. 30, ahead of Biden's inauguration.
The pennant developed directly above the recent, faster rising channel, and its breakthrough upwards used the top of the rising channel as a floor, suggesting an even steeper climb forward.
Trading Strategies
Conservative traders have to wait until after the report, and if we're right and the price jumps, wait for a retreat.
Moderate traders would wait for confirmation, at least from current trading, that the price remains above the pennant.
Aggressive traders could now take a long position, provided they understand and accept the risk and commit to a drafted trading plan.
Here's just one example:
Trade Sample
Entry: $ 870
Stop Loss: $ 820
Risk: $ 50
Target: $ 1,120
Reward: $ 250
Risk: Reward Ratio: 1: 5
