Written by Norman Isaac Mwambazi

Tesla stock: FactSet data signals a ‘death cross’ coming soon

Last year in December, automaker Tesla Inc. (ticker: TSLA) was included on the benchmark S&P 500 after fulfilling the requirements …

Last year in December, automaker Tesla Inc. (ticker: TSLA) was included on the benchmark S&P 500 after fulfilling the requirements through its filing to the Securities and Exchange Commission (SEC). In its filing, among other positive financial results, Tesla had posted profits in five consecutive quarters. After its inclusion, Tesla’s stock price surged, and it peaked at $883.09 on January 26. Since then, it has been going up and down in turns but losing more than it gains.

Now, it has reached a level that signals the company’s stock is moving further away from bullish to bearish, even after a massive rally in the previous few days. Analysts, using FactSet data based on Tesla’s stock chart, project the company’s stock to produce the first bearish “death cross” pattern in more than two years.

What is a death cross?

A death cross is that point at a company’s stock chart where a downward moving short term average crosses the long-term average.

In most cases, death crosses are usually not good market timing tools, due to the fact that they are predicted by technical analysts using a ton of market data far in advance. A death cross represents a downward trend of a stock’s performance on the market, an indication that a stock’s price has fallen for an extended period of time, and that this trend could go on into the long term.

A death cross in the stock market has preceded economic recesses in 1929, 1938, 1974, and 2008. However, there have also been times when a death cross has been a false indicator of an economic downturn, like in 2016.

Tesla stats

As mentioned earlier, Tesla’s stock was reaching for the sky months before it was included on the S&P 500, and continued to do so a month after its inclusion. In fact, Tesla surged so high that it briefly made its Chief Executive Officer (CEO) Elon Musk the richest man in the work with a net worth of $210 billion in March. When Tesla’s stock adopted a downward trend, Elon Musk was eclipsed from the position by then Amazon CEO, Jeff Bezos.

On February 8, 2021, Tesla bought $1.5 billion worth of bitcoin at a time when the cryptocurrency was rallying unstoppably. Tesla’s move into the crypto-verse led bitcoin to surge nearly 14% that day. Less than two weeks later, Wedbush Securities Managing Director Dan Ives said that the company had garnered an estimated $1 billion in profits from its $1.5 billion investment in Bitcoin — at least on paper

Musk got so excited that in March, he announced, through a tweet, that people could buy Tesla cars with bitcoin.

“You can now buy a Tesla with bitcoin. Tesla is using only internal and open source software and operates Bitcoin nodes directly. Bitcoin paid to Tesla will be retained as Bitcoin, not converted to fiat currency,” Elon said in a tweet.

In an unexpected turn of events, Elon announced, again on Twitter, that Tesla had stopped accepting bitcoin as a mode of payment, citing bitcoin mining’s effect on the environment as the reason why the company backstepped from the cryptocurrency. Elon even became more interested in a smaller cryptocurrency (smaller in value), Dogecoin. Bitcoin price has greatly dropped from its peak of upwards of $60,000 to its current price of $ 33,563.60.   

Yesterday, Thursday, July 8, 2021, Tesla closed the trading session with a gain of 1.3% at $652.81 a share, reversing an earlier loss of as much as 3.8% at the intraday low of $620.46 each share. In today’s premarket trading, Tesla 0.6%.

However, not even this rise can save Tesla from registering a death cross. Analysts project the stock’s 50-Day Moving Average (DMA) is set to fall to $629.61. Wall Street chart watchers use the DMA as a guide to the shorter-term trend. On the other hand, Tesla’s 200-DMA is expected to rise 0.01%, from Thursday’s close of $629.60 to $630.75. The 200-DMA is seen by many Wall Street analysts as a dividing line between longer-term uptrends and downtrends.

This means that the 50-DMA is set to close below the 200-DMA today, Friday, July 9, 2021, and if it happens, it would end a 20-month streak in which Tesla’s 50-DMA has been above the 200-DMA. This is when the death cross is expected to happen for Tesla’s stock.

You could be wondering now; can Tesla avoid the death cross? The easy answer is yes, but it is highly unlikely and it could take a miracle for it to happen. Why? Well, because at the current price of $658.20 USD (0.83% today), it would have to soar nearly 12% to roughly $728.95 on Friday to keep the 50-DMA above the 200-DMA. I guess you see how highly unlikely that is.

It is worth noting that Tesla stock is trading 26% below its record of $883.09 registered towards the end of January. Tesla’s mega-capitalization counterparts like retail giant Amazon (ticker: AMZN), tech giants Apple (AAPL), Google’s parent company Alphabet (ticker: GOOGL), and Microsoft (MSFT), and social network giant Facebook (ticker: FB) which recently joined the five companies above in the trillion-dollar club, have all performed exceedingly well, hitting new records this week.

Tesla’s stock chart continues to point downwards. Its shares have dropped 7.5% year to date in the same period that Nasdaq and the S&P 500 have gained 13.0% and 15.0% respectively.

It looks like every time Tesla’s stock peaks; it is followed by a downward trend. What is about to happen to the world’s leading electric vehicle maker last happened to it more than two years ago, on February 28, 2019, to be exact. This was about two months after the company reached a multi-month closing peak. The company would then close 15% below that peak and tumbled another 44% before rising again.

The fact that Tesla’s stock hit a death cross in 2019 and kept on falling for three more months doesn’t signal positive this time around. A death cross could an indicator that a company’s stock could keep on falling for a few more months until it bottoms out. 

For consolation to Tesla investors, other EV companies are not performing well either. Nio Inc. (ticker: NIO) had its death cross appear on May 24, and Nikola’s (ticker: NKLA) appeared on November 3, 2020.