How To Trade Tesla Stock Before And After Q2 Earnings

Tesla, Inc TSLA was trading slightly higher Wednesday as the company heads into its second-quarter earnings print after the close.

When Tesla printed a massive first-quarter earnings beat on April 20, the stock gapped up almost 10% higher the following day but ran into a group of sellers who caused the stock to close just 2% higher before continuing in its downtrend. Between that date and May 24, Tesla plunged an additional 38% before reaching a bottom at the $620 mark.

For the first quarter, Tesla reported revenue of $19.8 billion, which beat the $17.76 billion consensus estimate. The company reported earnings per share of $3.22, beating a consensus estimate of $2.26. Despite headwinds during the first quarter, Tesla reported record deliveries.

For the second quarter, analysts, on average, estimate Tesla will report earnings per share of $1.91 on revenues of $17.39 billion. Tesla reported last month that it delivered 254,695 vehicles in the second quarter, down from 310,048 units in the first quarter.

Ahead of the event, two analysts weighed in on Tesla’s stock. Credit Suisse assumed an Outperform rating on Tesla and announced a price target of $1,000. GLJ Research analyst Gordon Johnson, who is a Tesla bear, maintained a Sell rating and raised the price target from $67 to $73.

From a technical analysis perspective, Tesla’s stock looks bullish heading into the event, having settled into a consistent uptrend pattern on the daily chart. It should be noted that holding stocks or options over an earnings print is akin to gambling because stocks can react bullishly to an earnings miss and bearishly to an earnings beat.

Options traders — particularly those who are holding close dated calls or puts — take on extra risk because the algorithms writing the options increase premiums to account for implied volatility.

For options traders with weekly calls to profit from Tesla’s potential run higher or drop to new lows, the stock will need to move more than 6.71%, which is the implied move institutions have priced into the calls and puts expiring this Friday. If Tesla reacts to a lesser degree, the premiums will drop on Thursday and the options are likely to expire worthless.

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The Tesla Chart: Tesla reversed course into an uptrend on June 16 and has since made a consistent series of higher highs and higher lows. Tesla’s most recent higher high was printed on July 8 at $764.94 and the most recent higher low was formed at the $675.10 mark on July 13. In order for the uptrend to continue, Tesla will need to create another higher high over the coming days.

On Wednesday, Tesla’s volume was measuring in below average, which likely indicates traders and investors are feeling weary of trading the stock prior to its earnings print. At the time of writing, about 20 million Tesla shares had exchanged hands compared to the 10-day average of 28.34 million.
If Tesla closes the trading session near its high-of-day price, the stock will print a hammer candlestick, which could indicate higher prices will come again on Thursday. If the stock closes the session near to flat, Tesla will print a doji candlestick, which could indicate lower prices are on the horizon.
If lower prices come on Thursday, Wednesday’s high-of-day will serve as a lower high, which will negate the uptrend. If that happens, Tesla may trade into a tightening range for a period before choosing a direction.
If Tesla receives a bearish reaction to its earnings print, and falls under the $675 level, a downtrend is on the horizon.

Tesla has resistance above at $745.63 and $780.79 and support below at $720.95 and $700.