While some high-flying tech stocks have gotten their mojo back, others remain stuck in neutral. Tesla Inc (NASDAQ:TSLA) finds itself among the latter group.
TSLA stock spent its summer locked in a tug-of-war match between equally powerful foes. Just when it looked like one group was gaining the upper hand, the other one staged a solid comeback. But I suspect a victor will soon be declared.
The back-and-forth in Tesla shares has taken on the form of a symmetrical triangle. This neutral pattern is comprised of a descending and ascending trendline. The series of lower pivot highs shows sellers getting more aggressive on every rally.
And the series of higher pivot lows show increased aggression by buyers on every dip. As you can see, TSLA is now approaching the apex of the pattern, which suggests a breakout is imminent.
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The neutral nature of Tesla’s price action is confirmed by the 20-day and 50-day moving averages which are essentially flat here. While some contend the direction of the breakout remains elusive, I suggest looking to the higher time frame for clues.
For example, consider the weekly chart below.Note how the stock is entrenched in an uptrend complete with rising 20-week, 50-week, and 200-week moving averages.
Consolidation patterns often resolve themselves in the direction of the larger trend, which is obviously UP in this case. But here’s the beauty of this trade setup – we don’t need to guess the direction of the eventual resolution. Instead, we simply wait for confirmation and then trade in the direction of the breakout.
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Note how the stock is entrenched in an uptrend complete with rising 20-week, 50-week, and 200-week moving averages. Consolidation patterns often resolve themselves in the direction of the larger trend, which is obviously UP in this case.
But here’s the beauty of this trade setup – we don’t need to guess the direction of the eventual resolution. Instead, we simply wait for confirmation and then trade in the direction of the breakout.
The TSLA Stock Triangle Trade
The descending trendline and prior pivot high for Tesla shares sit at $359 making that the level to watch for an upside break. Since stocks are getting whacked today and TSLA is down, it may take a few trading sessions before this level is revisited. I
f the stock can trade above $359, then buy the Oct $360/$380 bull call spread.
As of this writing, Tyler Craig didn’t hold any positions in any of the aforementioned securities. Want to learn how to master the art of option selling for high-probability cash flow? Check out Tyler’s recently released video series through Tackle Trading on how to systematically sell iron condors for monthly income.
