Tesla stock is pulling back after second-quarter financials Wednesday, as investor concerns over falling gross margins is outweighing the global EV giant's earnings and revenue-beating numbers.
David Ryan, three-time U.S. investing champion and former portfolio manager under IBD founder Bill O'Neil, told IBD Live Friday that Tesla's strong run might be over.
Ryan said that on a daily chart, Tesla stock has made three big moves since June 21. However, the latest move, on July 3, took place in lighter volume. Then, the pullback Thursday took place in higher-than-average volume.
"That's telling me that this move might be over for a bit," Ryan said.
Tesla stock edged up a fraction early Monday during market trade. On Friday, shares dropped 1.1% to 260.02.
TSLA tumbled 9.7% to 262.90 Thursday, falling below the 21-day line but only giving up July gains. The Tesla stock decline began late Wednesday after Tesla reported second-quarter earnings.
The EV company announced that operating profit fell 2.6% vs. a year earlier despite a 47% revenue jump.
Ahead of earnings, Cathie Wood sold off tranches of her firm's Tesla stock holdings in consecutive sessions, unloading more than 73,000 shares this week before the EV giant reported second-quarter financials Wednesday.
Cannot 'Watch This One'
Irusha Peiris, portfolio manger at O'Neil Global Advisors, added Friday on IBD Live that he sold some of his Tesla stock position when it broke below the 21-day line Thursday.
"I don't think I can really watch this one too much right now," Peiris said. "It's definitely disappointing action."
Peiris added the best case scenario for TSLA now is it holds the 10-week line and builds a new base.
"It's definitely not in the same class as Nvidia or a Broadcom," Peiris said.
Tesla Stock: Elon Musk Calls Margins Drop 'Silly'
Tesla's total gross profit grew 7% to $4.53 billion in the second quarter. Meanwhile, total gross margins came in at 18.2%, down from 19.3% in Q1 and a decline of 682 basis points vs. last year. Auto gross margins, excluding regulatory credits and leases, came in at 18.1%, down from 18.3% in Q1.
That is below the 20% gross margin "floor" Tesla previously targeted. Ahead of earnings, a slew of analysts rang warning bells on gross margins.
"The short-term variances in gross margins and profitability really are minor relative to the long term picture," Chief Executive Elon Musk told investors Wednesday.
"Autonomy will make all of these numbers look silly," he added during the Q2 earnings call.
Tesla Stock
TSLA stock is greatly extended from a cup base with a 207.79 buy point. Shares have climbed more than 130% so far in 2023, according to Leaderboard analysis.
Now Tesla is working on a deeper cup base going back to September 2022 with a 313.80 buy point.
Technically, Tesla now has a handle on a weekly chart, offering 299.29 buy point. But a slightly deeper pullback or pause could create a meaningful handle. That handle could end up developing into a new base with the broader consolidation. An extended handle or new base would offer more time for moving averages to catch up to the TSLA stock price.
Tesla stock ranks third in IBD's automaker industry group. It has a 98 Composite Rating out of 99. Tesla has a 95 Relative Strength Rating and its EPS Rating is 94 out of 99.
Please follow Kit Norton on Twitter @KitNorton for more coverage.
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