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This is how you trade Tesla: Pro

Talking Numbers

Elon Musk has a big concern when it comes to his plans for a cheaper electric car down the road. And, the fate of his company, Tesla, hangs in the balance.

In an interview with CNBC's Kelly Evans, Musk said:

"Our main concern is to make sure that the gigafactory—the battery factory—is ready when the third-generation car is ready because if we design a car and we tool up to produce the rest of the car—which is also a big expense—but then there are no batteries to supply it, it would be a terrible outcome for Tesla. We might fail as a company. So, that has to be paramount in our decision-making."

So, is buying Tesla's stock worth the risk?

For Gina Sanchez, founder of Chantico Global, Tesla investors can't afford any missteps from the company.

(Read: Is this the world’s most important car company?)

"I'm worried about the valuation," said Sanchez, a CNBC contributor. "This is a gamble. This is your ultimate growth stock. Tesla is part technology stock, but it's also part manufacturing stock. And, the challenge to that valuation is the manufacturing bit."

Tesla is trying to build an infrastructure in six years to compete with an auto industry that has been building its infrastructure for a century, said Sanchez.

"That's a risk," Sanchez said. "If they hit, it's going to hit big; 200 times [forward earnings] might not be enough. But, if it doesn't hit, it's going to be a big failure—it's going to be a colossal failure."

Musk will have to meet the targets for building battery "gigafactories" and having nationwide charging stations for the stock to be successful, Sanchez said. "This stock right now is priced for that," she added. "It's priced to perfection and that's a challenge."

(Read: Elon Musk takes on carbon with solar, battery bets)

But, there are ways short-term investors can trade Tesla's stock, according to Richard Ross, global technical strategist at Auerbach Grayson.

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Ross' charts show Tesla's stock faced downtrend resistance since peaking in February. "But, we hold that 200-day moving average almost to the penny," he notes. From its dip in May, the stock has since bounced back, breaking above some short-term resistance around the $220-per-share level. He believes it will serve as near-term support in case of any pullback.

Ross also believes the longer-term chart of Tesla shows an interesting pattern which technical traders may be able to use.

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"That 200-day moving average has provided very nice trading signals on a number of occasions," Ross said. "If you like the story, you like the stock, and you have a little appetite for risk. Why don't you hold the stock—a small position commensurate with the risk in the stock—and don't sell it until it breaks below the 200-day moving average which has held now for almost two years."

Ross pointed out that after each of the three tests of the 200-day moving average since September, Tesla has had a strong advance.

"I think you want to be an owner here of Tesla," Ross recommends, saying investors should keep "a smaller position size but keep that stop around that 200-day moving average to protect yourself from a bigger decline or a companywide failure, as Mr. Musk alluded to."

To see the full discussion on Tesla, with Sanchez on the fundamentals and Ross on the technicals, watch the above video.

 

 

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