The Bears Get a Shot at Tesla Stock (TSLA)

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Monday was a risk-off day for stocks in every way, and that classically took with it many of the momentum stocks, including Tesla Motors (TSLA). But luckily for momentum names like TSLA, a pickup in volatility often also means more opportunity for active investors and traders.

beat the bellAs stocks enter the beginning of fall — which has a tendency to be more volatile than late summer or later in the fall — it is imperative that market participants clearly know what time frame they want to operate in. Volatility can be a trader’s best friend, but it also can be confusing to the more tactical investor as each day brings about a plethora of new and potentially conflicting signals.

During times of stronger volatility, I often drift to the larger momentum names, and Tesla stock is a great example. As the saying goes, “risk happens fast,” and while TSLA still looks constructively positioned through a multimonth lens, the near-term seems to decidedly favor the bears.

Tesla Stock Charts

Lets look at the weekly chart of TSLA stretching back to spring 2013, which is when the explosive rally began.

From this perspective, when Tesla stock broke to fresh all-time highs in early September, it did so on waning upside momentum, as clearly represented by the relative strength index at the bottom of the chart. Note that the breakout to new highs only caused the RSI to form a lower high. In the meantime, TSLA’s early September breakout now appears to be a fakeout move, which should set Tesla stock up for a better mean-reversion trade lower toward the 2013 uptrend line.

Tesla stock charts weekly tsla
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On the daily chart, Tesla began to consolidate in a tight manner after breaking to new highs in early September, and that could have led to another leg higher. The beauty of TSLA’s position in mid-September was that a break above the consolidation wedge would have set up a trade to the long side, but a break below it would have set up a short.

And it did.

On Sept. 15, Tesla stock sold off around 9% on the day, thus breaking out of the consolidation wedge to the downside, sliding below the lateral breakout point and also setting up a new short-side trade.

tesla stock charts daily tsla
Click to Enlarge

In the meantime, TSLA has worked itself back to the rising 50-day simple moving average (yellow line), but considering the near- to medium-term bearish construct of the above weekly chart likely, that won’t hold much as support. Tesla stock looks to be making a better mean-reversion move.

Active investors could short TSLA stock around the $250-$255 area for a mean-reversion move back toward the 2013 uptrend line, which also coincides with the 200-day simple moving average (red line), near the $210-$220 area.

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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.


Article printed from InvestorPlace Media, https://investorplace.com/2014/09/bears-tesla-stock-tsla/.

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