Tesla Motors Inc (NASDAQ:TSLA), while still range-bound, has seen a wild ride so far in 2016. News flow around TSLA stock still is heavy, and on Thursday, the National Highway Traffic Safety Administration announced that it is looking into reports of suspension issues with the Tesla Model S. (Tesla’s take? That’s “preposterous!”)
As a result, Tesla stock pulled back on Thursday right at a technical resistance area. Active investors and traders now have a defined area where they can lean against TSLA for a trade.
Investors tend to get spooked any time a regulatory body announces an investigation into a company or its products or services. As such, it’s only natural that TSLA stock would face a negative reaction. However, before we look at where Tesla Motors pulled back from earlier this week, let’s first look for perspective on the year-to-date movements.
TSLA Stock Charts
Tesla shares dropped hard along with the broader U.S. stock market in early 2016 before forming a V-shaped bottom in February. Technically, TSLA stock at the February lows broke below the big sideways range, but this only proved to be a fake-out move; the sharp rally off the February lows quickly moved the stock back inside the range.
By early March, the rally in TSLA stock began to intensify as investors tripped over themselves to bid the stock higher in anticipation of the Model 3 announcement. By early April, this exuberance reached maximum craziness and the stock began running out of steam — right at the very upper end of the trading range, as marked by the red dotted lines.
On the daily chart, we see that the stock quickly began to deflate again, and from the April highs into the lows of early May, Tesla dropped about 25%. The multiweek rally off the May lows into this week’s highs also measured 20%, but this all came to a head on Wednesday.
On Wednesday, TSLA stock bumped into a technical confluence resistance area made up of a) the yellow 50-day moving average, and b) a horizontal area of resistance marked by the blue box (former support) and a 50% retracement of the selloff from the April highs into the May lows.
Traders on Wednesday were giddy to see the stock reclaim its 50-day MA, but while Tesla stock managed to do so on a daily closing basis, the stock did close well off its intraday highs — a first warning.
Thursday’s follow-through selling confirmed that Wednesday’s intraday highs were of importance, and the stock on Thursday closed back below the aforementioned band of resistance.
Active investors and traders could now either buy puts, short some stock or sell out-of-the-money call spreads against the intraday highs on Wednesday around the $241 area.
A first downside target in the $210-$215 area could be used, while at the latest, any daily close back above Wednesday’s highs should be used as a stop-loss.
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