The stock price of high-performance electric vehicle manufacturer Tesla Motors (TSLA) has come under a good amount pressure lately.
From a technical perspective, the roughly 40% corrective move in TSLA was nothing but inevitable, as I have continually mentioned. The only real question was where this corrective move would start. Trend followers did well riding this stock higher; however, after the stock gapped down post-earnings in early November, it should have been clear that the stock needed some resting time.
In a further testimony to the technical weakness currently in play for TSLA stock, not even CEO Elon Musk’s soothing comments could lift the stock, which gave up an intra-day rally yesterday. In the interview, Musk mentioned that he is confident the company will be exonerated of any wrongdoing following several fires in the company’s flagship Model S cars. Earlier this year, that kind of comment would have rallied the stock strongly.
While Musk’s comments couldn’t get TSLA stock to get out of its own way on Monday, if we take a step back on the stock’s chart there is better technical support on the horizon. The below chart of Tesla shows how massively the stock exploded to the upside in the spring of this year. The 500% surge from late February to the late-September top essentially came with no breather, as trend followers, beta chasers and others stampeded into the stock.
This type of steep slope usually leads to meaningful retracements, so I’m mapping out areas of support where I could once again be interested in monitoring the stock for long-side trades. For TSLA specifically, the upcoming area of support is around $110-$115, and represents a 50% retracement of the entire rally discussed above, as well as the stock’s 200-day simple moving average (red line).
On the daily chart, TSLA is coming into a lateral support area between $105 and $132. The support dates back to the summer, where it did some constructive backing and filling, which led to the next up-leg into late September.
Given the confluence zone support coming up for the stock, I will soon again be interested in playing TSLA from the long side, but first I’ll need to see a little bottoming confirmation by way of a tighter pattern and bullish candlesticks. I will update as we get closer to this point.
Learn more about the strategies Serge Berger uses to create profits in the market every day. Download his trading plan in the Essence of Swing Trading e-book by clicking here. As of this writing, he did not hold a position in any of the aforementioned securities.