Tesla: Exploring the March 2020 Precedent
In recent times, the stock market has been experiencing a surge in volatility, with many stocks exhibiting characteristics similar to those seen during the COVID-19 pandemic. Among these, Tesla (TSLA) stands out for its unique behavior, which has drawn comparisons to its performance in March 2020. This article will delve into the historical precedent of Tesla’s stock price movements and explore why this comparison is relevant today.
Understanding Historical Precedent
Legendary investor Paul Tudor Jones, founder of Tudor Investment Corporation, built a career on understanding market history and applying timeless investing principles to predict future events. In 1980, Jones started his investment firm with a shoestring budget of $30,000 outside investment. By 1987, he had made a name for himself by shorting the stock market into one of the worst single-day declines in history on October 19th, 1987, also known as "Black Monday." This crash saw the S&P 500 plummet some 20% in a single session.
Jones’s success can be attributed to his ability to recognize excessive market speculation and overvaluation. He used technical analysis, including an overlay chart, the 200-day moving average, and "Elliott Wave Theory" (identifies recurring wave patterns), to predict the crash. This simple yet effective contrarian process helped him make around $100 million and set the stage for his current net worth of approximately $8 billion.
Applying Historical Precedent to Individual Stocks
As I have learned from mentors and my own trading, precedents can also be used for individual stocks. By studying the historical behavior of specific companies, investors can gain valuable insights into their future performance. In this case, Tesla’s stock price movements in March 2020 offer a relevant precedent for understanding its current behavior.
Tesla’s March 2020 Precedent
During the COVID-19 pandemic, Tesla shares exhibited several characteristics that are similar to those seen today:
- Strong Uptrend Ending in a Climactic/Gap Move: In March 2020, Tesla shares had a strong uptrend that ended with a climactic/gap move. This is also reflected in the current chart.
- Three Waves of Selling Resulting in ~50% Decline in a Short Time: The stock experienced three waves of selling, resulting in a significant decline of around 50% in a short period. This pattern can be seen again in the current market conditions.
- Seven Straight Red Sessions Before a Tap of the 200-Day Moving Average: In March 2020, Tesla shares had seven consecutive red sessions before touching the 200-day moving average. The same scenario is currently unfolding.
Tesla Enters "Value Zone"
The comparison between the 2020 and current charts doesn’t stop at technical analysis. Another striking similarity lies in Tesla’s valuation. In 2020, TSLA’s price-to-sales ratio was single digits. By late 2024, TSLA’s valuation dipped back to these levels.
Tesla Exits Transitional Period
In 2020, Tesla was exiting a transitional period, marked by the release of the Tesla Model Y and its subsequent success as the world’s best-selling car by 2023. Currently, Tesla is entering another transitional period with the launch of Robotaxis in Austin, Texas, this summer – a project Elon Musk has expressed confidence in.
How Did Tesla Perform in 2020?
After touching the 200-day moving average in March 2020, TSLA shares skyrocketed from around $23 to $294 per share by January 2021. While history may not repeat itself exactly, based on this historical precedent, the risk-reward looks very favorable.
Conclusion
The comparison between Tesla’s stock price movements in March 2020 and its current behavior offers valuable insights into the company’s future performance. By understanding the historical precedent of this unique company, investors can make more informed decisions about their investments. As we continue to navigate the volatile market conditions, it is essential to stay vigilant and adapt our strategies accordingly.
Tesla: A Stock Worth Watching
With its unique character and tendency to rise over time, Tesla has become one of my favorite stocks to trade. The company’s current performance and historical precedent make it an attractive investment opportunity for savvy investors. By staying informed about market trends and adapting our strategies, we can capitalize on the opportunities presented by this iconic stock.
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