TSLA: Tesla Stock Turnaround Looks Inviting

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Momentum darling Tesla Motors Inc (NASDAQ:TSLA) has finally mustered up the strength to break free from its downward spiral.

tesla stock motors tsla stockWith this morning’s upward move, shares of the popular Model S maker have climbed 10% in the past week, vaulting above a pair of pivotal resistance levels in the process.

Skeptics may mention TSLA stock has registered numerous failed bounce attempts along the way, so don’t get suckered in.

But, dare I say it, this time looks different.

On the price action front the posture of TSLA has improved notably. The case for a Tesla stock bottom is more compelling now than at any point during its downward slog.

Here are the top two technical developments in TSLA.

  1. Trendline Break.  All prior recovery attempts in TSLA were stymied by the downtrendline (red dotted line in chart). This is the first rebound that has succeeded in climbing above it since the downtrend commenced a long seven months ago.
  2. Momentum Divergence. While the stock has been scoring lower pivot lows, the RSI indicator has quietly been forming higher pivot lows creating a bullish divergence. This suggests the momentum of the downtrend has been slowing for awhile now.
TSLA
Source: OptionsAnalytix

With TSLA up a fast 10%, spectators loathe to chase may want to wait for a pullback of some sort. That’s when the true test of the trend reversal will take place. If the dip is bought and a bona fide uptrend takes root, this recovery attempt will succeed where all others failed.

Bet With Tesla Bulls

One of the easier ways to bet with the bulls in TSLA is by selling out-of-the-money put vertical spreads. We can use strike prices well below recent support levels so that we profit as long as the stock doesn’t completely fail its ongoing reversal bid.

Sell the May $175/$170 put spread for 70 cents or better. The maximum reward is limited to the initial 70-cent credit and will be captured if TSLA can remain above $175 for the next month.

The maximum risk is limited to the distance between strikes minus the net credit, or $4.30, and will be lost if TSLA tumbles below $170.

At the time of this writing Tyler Craig had no positions on any of the aforementioned securities.

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Article printed from InvestorPlace Media, https://investorplace.com/2015/04/tsla-tesla-stock-turnaround-looks-inviting/.

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