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Despite some recent volatility, since the beginning of August Tesla (TSLA) stock seems to be moving in a narrow trading range. The following is a graph of the stock price evolution in the last 12 months:

(click to enlarge)

The dark-green line is the average price of the stock for the period October '11 - July '12 while the red line is the average for the period August '12 - September '12. The average share price has moved from $31.15 in the first period to $29.17 in the second and the standard deviation (light-green and orange lines) has narrowed from $2.86 to $1.35.

It looks like there has been a significant change in the trading patterns and I think we can expect for the near future a continuation of the smaller fluctuations, as seen in the last 2 months.

I suggest to profit from them, buying into the stock as it approaches $28 and selling the position above $30.5. I don't see any catalyst that can trigger a company re-rating in the next few months. A capital increase had been announced and the CEO gave a slightly negative update on the next quarter guidance. So the stock should trade in a $3-4 interval before any market sensitive data release will determine the mid-term direction. Order intakes for Q1/13 will be the key data to observe but until then any dip is an opportunity to buy until the next spike above the recent average price.

I have a positive bias towards the company, since I believe they have a technology advantage (it's by far the best electric vehicle technology), they have established partnerships with leading car-manufacturers (Toyota and Daimler) that provide additional revenue stream, they received a significant number of pre-orders and the management is committed to the project, being also a shareholder (Elon Musk will participate to the capital increase and already owns 24% of the company). Moreover the new Model S has received broad positive reviews in terms of design, comfort and speed, providing a vehicle with significantly lower running costs than any competitors in the same category, especially at current levels of gasoline prices.

Surely there are some headwinds: the dilution from the recent equity offering, the capex (new shops are opening, the installation of the turbo chargers, the production rump up) which might drain cash-flow, the high level of short positions on the stock (48% of the free-float, 26% of the total) and the repayment of the government credit due for the beginning of 2013.

Despite of that, mid-term the stock can easily trade above $35 especially because the high margins that it will have if it can reach its 20,000 car sales in 2013 (but any number above 18,000 should guarantee positive cash-flows). In the short-run instead, I think the range-bound trading will be confirmed and will present a tactical trading opportunity for active investors.

Source: Tesla In A Trading Range