On Tuesday, Tesla Motors Inc. (TSLA) announced its offer to acquire SolarCity in all stock proposal worth approximately $2.5-3.0 billion. Tesla proposed an exchange ratio of 0.122x to 0.131x shares of Tesla common stock for each share of SolarCity common stock. This proposal represents a value of $26.50 to $28.50 per share, or a premium of approximately 21% to 30% over the closing price of SolarCity’s shares.
At the conference call, CEO Musk stated he wants to be able to sell solar panel products together with Tesla automobiles and Power Wall batteries as an integrated system.
Today, Morgan Stanley's Adam Jonas downgraded his call on Tesla to “equal weight” from “overweight”. The former Tesla advocate also cut his price target $88 from $333 to $245.
Price action on the Tesla daily chart show the recent slide broke below all three key (200-, 100-, and 50-) SMAs. Today’s slight rebound stalled after respecting the psychological $200 level. If we continue to see downward pressure, price may find support from the $180 region. It is around that area that price could form a bullish Gartley pattern. Point D is targeted with the 70.7% Fibonacci retracement level of the X to A leg and the 161.8% Fibonacci expansion level of the B to C move. If valid, a bullish reversal could target the $220-240 zone. If the Gartley pattern is invalidated, initial support will come from the $170 handle, with deeper support targeting the psychological $150 handle.
The Trade: Buy Tesla shares at $180, with a stop loss of $165 and take profit of $215. The risk/reward ratio is 1:3.