Tesla Inc (TSLA) Stock Moves Have Become Predictable, to a Point

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The recent Tesla Inc (NASDAQ:TSLA) headlines haven’t been easy ones for fans or investors of the company to digest. Case in point: TSLA stock is now the market’s most shorted stock, suggesting traders fear the worst is looming. And, after becoming technically overbought following a breakout thrust above $287, Tesla stock is now reportedly being sold by all-important institutions. That’s not a good sign.

Tesla Inc (TSLA) Stock Moves Have Become Predictable, to a Point

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Yet, the rhetoric doesn’t quite fit the reality.

See, all the rhetoric assumed that traders view Tesla as an investment in an electric car and solar panel company. It’s not. TSLA stock is a trade based on a premise. Indeed, the “trade” is mostly a bet on how the market’s going to feel about Tesla stock six months to two years in the future.

That’s not a bad thing, though, as long as you know it. Indeed, when you know how the game’s being played, trading TSLA actually makes a lot of sense. As it turns out, these psychological chess matches are relatively easy to handicap if you use the right tools.

Right on Cue

The simple, shortened version of a long and complicated explanation: Story stocks like Tesla lend themselves quite nicely to technical analysis, if only because there’s no fundamental analysis (that matters) to get in the way. The technicals provide a much-needed framework for the stock’s price.

It was technical analysis that spotted the April-June breakout thrust. All it took was a break above an established ceiling at $287 to open the proverbial floodgates.

It’s hardly a one-and-done situation, though. All stocks ebb and flow their way through key technical analysis levels, and TSLA isn’t an exception. In fact, last week’s rollover makes perfect sense… in the right context.

The chart of Tesla shares below looks at the stock all the way back to mid-2014. That’s when the trading range between $177-$287 started to form. Each boundary was tested a few times through early this year, when the upper edge of the range finally gave way to the bulls.

In that we’re in no-man’s land (so to speak) here in record-high territory and we don’t have any prior highs and lows to use as a reference, so the next-best tool at our disposal is the use of Fibonacci extension lines to spot the most plausible ceilings using the $177/$287 range as our frame of reference.

The nearest one is/was the 61.8% extension that lies at $356. TSLA stock briefly cleared it last week, but it’s also clear it wasn’t ready to keep moving to the next level. By the time all the dust settled, Tesla shares were very near the $356 mark. Clearly there’s something about that line.

Tesla (TSLA) Stock
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Realistically speaking, now that all those buyers flinched and the headlines turned rather sour, Tesla stock is apt to be pressured in a bearish way. A trip back to the $287 area is a distinct possibility. The good news is, that line in the sand is more likely to be a floor than a ceiling this time around.

Looking Ahead for TSLA Stock

Even with a lull back to the $287 mark, however, the story is far from over. There are more Fibonacci extension levels — and other key lines — above. The $398 line is a biggie, setting up the same sized trading range between there and $288 that we saw when TSLA was trapped in the $177/$287 range. And, beyond that the $467 level is one to watch… even if that’s months down the road.

In the meantime, plenty of other technical analysis tools will help identify the peaks and valleys that are in the cards for this well-covered stock.

Whatever’s in store, don’t be afraid to use technical tools to trade Tesla. As was noted, this isn’t an investment. It’s a trade based on an idea, and more than that, it’s a trade based on perceived changes in sentiment. For better or worse, the trading crowd’s psychology is pretty predictable, and that psychology tends to shift in conjunction with key technical levels.

It’s all just part of the game.

As of this writing, James Brumley did not hold a position in any of the aforementioned securities.


Article printed from InvestorPlace Media, https://investorplace.com/2017/06/tesla-inc-tsla-stock-moves-become-predictable-point/.

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