To The Moon

Tesla TSLA +2.57% shares have been on a wild ride lately as investors debate profit margins, price cuts and EV demand. Predicting what’s next is no easy task given all that, plus rising interest rates and persistent inflation. Stock charts and stock seasonality can help investors get a sense of whether or not they should just sell in May and come back and revisit shares later in the year.

Neither are fundamental data points, but given how volatile Tesla (ticker: TSLA) stock is, and all the economic cross currents, investors will likely take whatever help they can get.

Lately, things have been looking a little bleaker for bulls. Tesla shares are down about 25% from a 2023 high of $217.65. That high is up about 114% from a 2023 low of $101.81. The low came after disappointing deliveries and price cuts around the globe meant to stimulate demand. The 2023 high came after there was evidence that the price cuts were working. But then Tesla kept cutting prices after an initial surge in demand, further weakening profit margins and leaving investors wondering if Elon Musk’s pricing strategy made sense.

Through it all, 2023 has been pretty good for Tesla investors. Shares closed up about 33% through April while the S&P 500SPX +0.83% and Nasdaq CompositeCOMP +0.69% rose about 8% and 17%, respectively. A strong start to a year isn’t unusual for Tesla. The average gain in the first four months is about 18%, and shares have risen 10 of past 13 years between the end of a year and the end of April.The average gain between the end of April and the rest of the year is 51%. And shares have risen in nine of the past 12 years. What’s more, the summer months tend to be strong for Tesla stock. The average gain in June, July and August is north of 7% and June and August have been Tesla’s best months for stock returns.

Why that’s the case is only speculation. Perhaps full year earnings estimates tend to bottom out after first quarter earnings are reported and rise during the warm months. Full year earnings estimates in 2021 and 2022 rose between April and the end of those years. That could help shares this year if estimates rise.

That’s a big if. Wall Street’s 2023 earnings estimates started out 2023 at about $5.50 a share. Then came price cuts and lower profit margins. Now 2023 earnings estimates average about $3.50 a share.

The pattern of earnings estimate changes is one potential explanation for Tesla stock seasonality. Maybe investors just feel better about the company during the summer driving season.

Stock charts offer another way to look at any stock. Fairlead Strategies founder and market technician Katie Stockton tells Barron’s that investors should watch the $156 level for Tesla, tested this past week, very closely. If shares break below that, then the early 2023 lows around $105 are in play.

Stockton isn’t making a fundamental call. She, and other technicians, use chart patterns to get a sense of where investor sentiment lies as well as where traders will get more interested, or less interested, in any stock.

CappThesis founder Frank Cappelleri wouldn’t be surprised if Tesla stock started out May with a gain, calling shares oversold. That’s when a lot of bad news is reflected in stocks. In the case of Tesla, that would be the disappointing profit margins reported on April 19. Near-term upside for him is in the $180 range, about $15 higher than current levels.

22V Research senior managing director and market technician John Roque is a little more bearish that the other two technicians. He believes the stock will test $100 again and sees upside limited to $200. That’s a max potential gain of about $35 and a loss of about $65 for him.

Stock seasonality argues for holding on to Tesla shares while the charts tell investors to adjust their thinking if shares break below $150.In the long run, of course, fundamentals such as earnings, cash flow and market share will determine what Tesla is worth. Tesla cutting prices might have investors thinking EV demand is slowing, but that doesn’t seem to be the case.

The first quarter of 2023 was a record for battery electric vehicle sales in the U.S. And around the globe, EV sales are up about 50% over the past 12 months, compared with the year ago period.

One thing investors should expect for Tesla stock for the rest of 2023 is more volatility. Stocks that trade for almost 50 times estimated earnings, like Tesla currently, tend to be a more volatile that other shares.