Electric car manufacturer Tesla Motors (TSLA) caught my attention again last Friday as it slipped lower along with the general sell0ff in the Nasdaq and many of the momentum darling stocks. From a technical perspective, TSLA stock formed a more near-term concerning pattern after Friday’s selling, so let’s look at what that might mean for the stock in the coming week or so.
Checking the wires, some seem to blame Friday’s nearly 6% selling in TSLA stock at least partially on news that California’s incentive to provide $2,500 rebates to residents who purchase an all-electric vehicle has run out of money. (To yours truly, that sounds like a silly excuse to sell down the stock, considering the demographics of Tesla customers.)
Either way, because the price action in TSLA is what I am more focused on than the everyday rumors surrounding the stock, last Friday’s move in Tesla stock should have reminded active investors in the stock that it remains a dynamic security.
TSLA Stock Charts
Bigger-picture, it’s important to keep in perspective Tesla stock’s sharp, roughly 12-month rally from March 2013 into late February 2014. TSLA’s first corrective move into November 2013 quickly lured investors back in, pushing it to fresh highs by early February. Tesla stock then continued to rally into its mid-February earnings report, and without taking a breather pushed higher yet again a few days later on news of the company getting into the battery business.
More precisely, TSLA stock rallied another 20% in the days after this announcement, but the rally had an exhausting character to it. Ultimately, it proved a little too much too soon, leading to the past few weeks of consolidation.
So, from this 12-month view, TSLA stock isn’t broken, but it still shows signs of near- to medium-term exhaustion, which could lead to it retesting the breakout area from February (top of the blue box on the below chart).
Now for the daily chart.
After Friday’s selling, TSLA stock has once again reached its rising 50-day simple moving average (yellow), which has served as support for more than one week now. The mini-bounce in the early part of last week, however, is taking the shape of what technicians refer to as a bear flag pattern, which (as the name indicates) often leads to lower prices. Momentum indicators such as the Stochastic oscillator also hint that Tesla stock could fall lower.
If TSLA breaks below the $207 area on a daily closing basis, then the next bigger support reference area — which roughly spans from $166 (red 200-day SMA) up to as high as $195 — comes into play, meaning that Tesla stock could have anywhere from another 6% to 15% of downside in fairly short order.
To be clear, I am not long-term bearish on TSLA stock. I am merely pointing out that in the near-term the stock could see more downside consolidation, and for the active investor and trader, this might provide an opportunity.
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Download Serge’s trading plan in the Essence of Swing Trading e-book here. As of this writing, he did not hold a position in any of the aforementioned securities.