Tesla nears bear market territory, along with This kind of could get a lot worse

Tech stocks are soaring, nevertheless there’s one name in which’s noticeably absent coming from the recent rally: Tesla.

Shares inside the electric-car maker fell 2 percent on Friday after reports in which production of the product 3 would likely be delayed. Tesla’s stock has been on a precipitous decline since hitting a high last month, falling 17 percent, near bear market territory.

“This kind of is actually very much a momentum stock … when you have these kind of momentum stocks, any sort of production delays, or any sort of push-outs they have with any of these fresh products, these stocks are going to react very quickly,” Craig Johnson, chief market technician at Piper Jaffray, said Thursday on CNBC’s “Trading Nation.”

coming from a technical standpoint, “if you look at the chart, you can see in which we’ve just recently broken what I would likely define as a bit of an ascending triangle. The stock has broken This kind of, along with This kind of looks like to us the next kind of big area of support comes in around $290. So you have another 11 percent downside before you actually find in which support,” he said.

Johnson added in which he would likely wait until shares fell to the $290 range before buying the stock. In midday trading Friday, Tesla shares were down 1.3 percent to $320.85.

inside the past, sharp declines in Tesla have proven to be tremendous buying opportunities. The last time Tesla was in a bear market the stock fell 32 percent over the course of seven months, coming from April 2016 to November 2016, nevertheless then inside the period following coming from November 2016 to September 2017, Tesla shares rallied 122 percent.

According to Dennis Davitt, portfolio manager at Harvest Volatility Management, “the options market is actually telling a story in which Tesla is actually two different companies … as a car a new, This kind of’s overvalued. As an infrastructure play, This kind of can go considerably higher. The momentum can carry This kind of higher.”

One of the main things in which is actually affecting Tesla is actually what “most people don’t realize. This kind of’s a highly rate-sensitive stock. A lot of growth is actually built on Tesla borrowing money, along with if the cost of borrowing money continues to boost, then This kind of’s going to have real negative effects on the stock,” Davitt said on “Trading Nation.”

He said in which using put options to hedge losses would likely be the best way to protect against a bigger drop. Options are “very inexpensive, along with I mean in which’s the play in Tesla,” specifically Davitt pointed to the January 325-puts. Tesla is actually set to report earnings next week along with the options market is actually implying a 6 percent move in either direction.

“Whether you buy This kind of or sell This kind of, if This kind of goes higher or lower, spend a little bit of money. Protect your downside along with then you can continue to the upside,” Davitt said.

Tesla is actually scheduled to report earnings after the market close on Wednesday, along with analysts polled by FactSet are expecting a loss of $2.27 per share on $2.9 billion on revenue.

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