The following is part of Pivotal Events that was published for our subscribers July 23 and August 6, 2015.
The history of innovations in transportation is fascinating. The motivation has always been efficiency and each big step was expensive in time and money. Making innovation worthwhile, in each successful case the drop in relative costs to the consumer were outstanding. Moreover, each major advance in transportation was accompanied by a speculative mania.
The Turnpike mania for the 1670s prompted satire, which is a realistic description of the process from raising funds to actual operation. (see insert)
The development of purely electric cars could be one such step. Tesla has been the ascending star. Its ultimate success depends upon a network of rapid charging stations equivalent to existing stations providing petroleum fuels.
The first efficiency-driven mania erupted in England in the 1670s with turnpike roads. At the time, land freight was still mainly transported by pack horse which could carry 250 lbs. Publically-traded companies promoted and developed "modern" toll roads whereby a horse could pull a wagon carrying, say, 2 tons. Later improvements included wheels with steel tires that were nine-inches wide that could carry much heavier loads.
The next big innovation in the 1700s was in canals, whereby a horse could pull a barge carrying some 30 tons. Wonderful and investors went wild. The order books were kept in the town where the proposed canal would start. There are accounts of speculators dashing through the night on horse or by coach to get to the next new issue.
The point to be made was that the speculation was in government-granted rights-of-way.
Soaring prices preceded actual construction and completion of the canal. Such stocks were popular in the 1772 Bubble.
On the next great bubble the new concept was railways. In that fateful year, the speculation was in the right to build a railroad from one town to another. Many new rail issues were floated as the bubble climaxed in 1825. But there were no actually operating lines. The 1825 Bubble peaked in May.
Railroads were very exciting as the "old" canals had problems with low water in the summer and ice in the winter. Not to overlook expensive vertical challenges.
The first railroad (Stockton to Darlington) began operations on 25 miles of track in that fateful September of 1825. It required a number of capital infusions and was not a commercial success until 1827. In the meantime, the post-1825 bear market started with a classic fall crash. It marked the beginning of a lengthy contraction.
TSLA has enjoyed a fabulous bull market within a fabulous financial bubble. If Turnpikes, Canals and Railroads are the guide it will take a long time to turn the new concept into commercial reality. This will require a network of plug-in stations equivalent to existing service stations.
Commercialization of electric cars within deteriorating credit conditions will seem like an eternity. In the meantime, the stock is vulnerable to change in the overall financial markets.
(Continuation August 6)
Our brief essay (July 23rd) on significant innovations in transportation compared the recent history of TSLA to the ancient history of turnpike roads (1670s), canals (1740s) and railroads (1820s). Each of those key advances started with a mania in the stock market, which raised the money and hope.
Construction took a many years and was fraught by precarious funding conditions. Quite like mining exploration. The discovery ramps up the speculative action which peaks as the street boasts "It's a mine!". Then the stock plunges to around 1/4 of the high as the mine is being developed.
TSLA stock soared on hype, government grants and tax breaks. The glory of electric cars is in the market. It will take many years to construct millions of electric plug-in stations.
That's if electric cars can be economic without government hype and subsidies.
The big speculative high was set at 291 last September with a Weekly RSI at 72. The subsequent low was 181 in March and the next rush made it to 282 on July 20th. The RSI made it to only 70.
This week's hit takes out five weeks of rally, which gets out attention. The 50-Day has been taken out at 261, which is Step One. Step Two would be taking out the 50-Week ma. This is at 233. Today's low was 236.
On the longer-term, the chart is working on a big Rounding Top. The high in March 2014 was 265, the next was at 291 in September 2014 and the next high was 286 in July.
Taking out the March low of 181 would turn it into a Rounded Top.
On the fundamentals, Tesla has been making exciting announcements about a new Model S. On July 17th, Car and Driver headlined "Tesla Loses Its Freaking Mind, Introduces 762-hp Model S".
As we often note, "So long as the stock is going up, the public will earnestly believe even the most preposterous story". And then it learns dismay. Once confirmed, the bear for TSLA could last for years.
- The MACD Sells have been reliable.
- The lead from the Weekly Upside Exhaustion was important.
- This, with the MACD suggests a cyclical peak has been accomplished.
Link to August 8 Bob Hoye interview on TalkDigitalNetwork.com: http://talkdigitalnetwork.com/2015/08/mainstream-media-finally-picking-up-creditspread-story
Listen to the Bob Hoye Podcast every Friday afternoon at TalkDigitalNetwork.com