I’m a chart guy. I love to look at stocks from a technical perspective, and as you would expect, the chart typically tells the story.
But not always. When a stock is very heavily followed, news flow can have a larger short-term effect on the price action. When this happens, the chart can appear to be missing a few key chapters.
This is currently the case with Tesla Motors Inc (TSLA), a stock that really moves around.
I would assume that most of you have heard of this automaker before, but for those who haven’t, Tesla stock is a leading designer and manufacturer of sleek electric cars, with more than 50,000 vehicles currently on the road around the world.
A Look at the TSLA Stock Chart
Tesla has been in rally mode since hitting a 52-week low in February, rebounding 91% to climb to a six-month high of $269.34 on April 7. But the stock is pulling back now, spurred by news that the company is recalling its Model X vehicle — the third-row seat needs to be replaced.
But even though the current pullback is event-driven and sounds like it could be a rally killer, the chart still suggests that TSLA stock may be setting up for a technical bounce.
As you can see above, there is price support at $240 (the horizontal black line), which served as resistance last year. The stock finally broke through earlier this month on above-average volume — a bullish indicator.
The current pullback is also on above-average volume, which can be a red flag, but the important consideration here is that it’s still less than the volume of the breakout.
There was also an important technical event last week, when the 20-day moving average crossed over the 200-day, which indicates that the short-term trend is improving and is often viewed as a buy signal. The two moving averages are also serving as support, putting the support zone between $227 and $240, and a pullback into that zone would be a high reward-to-risk buy setup.
If TSLA were unable to hold $227, it would immediately be considered a near-term sell.
In late March, we saw Tesla stock hold above the lower of the two moving averages (the 20-day) and rally to a new multimonth high. Because of that, the odds of another bounce off support are high.
As I mentioned above, the chart doesn’t necessarily tell the full story when it comes to a stock that’s as heavily followed as Tesla. So with the news of the Model X recall, it’s likely that TSLA stock will remain volatile in the near term as it attempts to bounce off support again.
Matthew McCall is founder and president of Penn Financial Group, an investment advisory firm. Matt also is Editor of FUTR Stocks, the ETF Bulletin and Co-Editor of Breakout Stocks.
