Christian Marquardt - Pool/Getty Images
- Tesla stock just flashed a sell signal that could spark 14% downside, according to Fairlead Strategies' Katie Stockton.
- "Tesla is the first of the megacaps to challenge support, with a pending breakdown below its 50-day moving average," Stockton said.
- The technical sell signal comes amid more price cuts for Tesla's Model 3, X, and S vehicles.
Tesla stock is on shaky ground after it generated a technical sell signal, according to Fairlead Strategies' founder Katie Stockton.
The electric vehicle maker has seen a rapid rise in 2023, soaring as much as 77% in the first few weeks of the year, but now it's giving back some of those gains.
According to Stockton, the decline could continue to $160 per share, representing potential downside of 14% from current levels of $185.
"Tesla is the first of the megacaps to challenge support, with a pending breakdown below its 50-day moving average. This is a bearish short-term development, noting the daily MACD is pinched likely to flash a 'sell' signal today, and with next support near $160," Stockton said in a Thursday note.
The moving-average-convergence-divergence indicator, or MACD, is a trend-following momentum indicator that technical analysts use to show the relationship between two moving averages of a security's price.
A signal line is plotted, which can function as a buy and sell signal. Stockton uses MACD to capture momentum and trend across multiple timeframes. The indicator is useful because it's very black and white, generating either a buy, or a sell.
The potential decline in Tesla stock comes amid more price cuts from the company, which analysts warned about after its first-quarter delivery update showed a jump in inventory.
"Incremental price cuts likely needed amid inventory build, especially as production at Austin and Berlin ramps [higher]," Barclay's said earlier this week.
Tesla moved ahead with its second price cut of the year in the US on Thursday, dropping its Model 3 and Model Y prices by at least $1,000, while it lowered the price on its Model X and Model S vehicles by about $5,000, according to its website.
These price cuts should weaken Tesla's profit margins, which, aside from delivery figures, is what Wall Street is laser focused on.
"The big question will be margins as cutting prices will have an impact on this front although we believe auto gross margins north of 20% remains the key threshold over the coming quarters," Wedbush analyst Dan Ives said in a recent note.
Investors will gain more insight into Tesla's first quarter results when the report earnings and guidance after the market close on April 19. And Tesla will need to wow investors if it wants to hold onto its year-to-date gains of 50%.
Correction: An earlier version of this article incorrectly said that the Model Y's price was cut by about $5,000. It was instead a price cut of about $1,000. The article was updated to reflect this change.