Timing Tesla's Bounce

| About: Tesla, Inc. (TSLA)
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Bad has turned to worse for Tesla (NASDAQ:TSLA) over the last couple of weeks. Initially catalyzed by its underwhelming quarterly results that lacked guidance for Q4, Tesla has also been plagued by another one of its battery fires, as well as a recent incident at one of its California production plants.

It was reported last week that the company had some sort of accident at its sole Model S plant - news of ambulances and fire engines outside of the production facility had investors on high alert and waiting for news during mid-market trading on November 13th.

It was later revealed that three of Tesla's employees were hurt by hot metal in an aluminum casting press. The company was quick to point out that production would not suffer, but the market continued to cast shadows over Tesla's stock, which is now down near 30% from its highs in late September. The stock still remains up a scorching 250% for the year.

CEO Elon Musk had come out and addressed a third fire that popped up over the past couple of weeks, claiming that he continues to stand behind his vehicle's safety - but that he was also going to take steps to continue the company's commitment to safety. In addition to giving the cars higher ground clearance (making them less likely to strike debris) and amending their warranties to include fire, he noted that he was asking Federal Safety Regulators to look into the incidents.

Coincidentally (or not) enough, this morning it was in the news that Tesla is now being investigated by U.S. auto regulators - a step that could mark the very beginning of a potential road to recall. Musk is standing his ground, calling Federal resources into the matter "not a good use of time", but he claims that going forward is necessary to reinforce Tesla's safety.

Bloomberg reported about the probe this morning:

In announcing the probe, NHTSA said both U.S. incidents led to thermal runaway, a phenomenon also found in the lithium-ion batteries on Boeing 787 Dreamliner airplanes that led to the plane's grounding earlier this year.

NHTSA said Oct. 24 it found no evidence the first fire resulted from defects or violations of U.S. safety standards. It didn't send investigators to the scene of that accident, in Washington State, because it occurred on the initial day of a partial U.S. government shutdown.

Two months earlier, the Model S received the highest possible ratings in NHTSA's crash tests, getting top five-star rating in each category.

NHTSA previously investigated fires in two other electric cars, the hybrid electric General Motors Co. (NYSE:GM)'s Chevrolet Volt and Fisker Automotive Inc.'s Karma plug-in. The Karma was recalled and GM voluntarily reinforced the battery packs on Volts, after one caught fire days after a NHTSA crash test.

What will result of the probe could be something, but will likely be little to nothing. As stated in the above article, the NHTSA has investigated fires in other electric cars, with resolutions like GM voluntarily reinforcing the battery pack on its Volt. While a total recall is still probably unlikely for Tesla, measures such as reinforcing the battery pack seem prudent and logical, if necessary, to appease the NHTSA and continue forward with business as usual.

In the midst of all of this, investors are eventually going to be looking for Tesla to bounce at some point - the question is "when"? In previous articles, I pointed out that I'd be likely to reestablish a long position in Tesla when it dipped under $110. Now, the technical picture could possibly support my theory for re-entry, depending on how hard the stock is hit on its new Federal regulator probe news.

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It's certainly likely to be a telling rest of the week for Tesla, especially on the newfound news of the Federal probe. If the market doesn't seem to pay too much attention to it (perhaps from Musk's preemptively mentioning the idea already), we could look for a technical bounce at around $110, right alongside Tesla's 200 day moving average. If the price loses that support, it'll likely retest $90, as it did back in early June of this year.

Like a lot of other momentum stocks, Tesla is not only susceptible to the results of this potential probe, but is also susceptible to macro market corrections, as well. While I find the likelihood of Tesla dipping under $90 even in the worst of circumstances, it's important to remember that companies with large P/E ratios like Tesla are usually the first ones roped in when the bigger markets correct.

I'll continue to watch how Tesla trades this week, with one eye on the support of the 200 DMA and the other on $90 below that for re-entry into my long position. Best of luck to Tesla investors.

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in TSLA over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.