There is definitely a reason to celebrate. Tesla Inc (NASDAQ:TSLA) announced on April 2 that first-quarter sales resulted in the company’s highest sales quarter on record. This news caused the share price to surge higher, and TSLA stock created a new all-time high in the process. This surge that caused the all-time high in the share price was the catalyst I have been long looking for.
In my previous publication on Tesla stock titled “Tesla Stock Is Setting Up for a Monumental Breakout,” I outlined that a break above a key level of resistance was required in order to confirm that much higher TSLA share prices are on the horizon. This key level has now been broken, and higher stock prices are now set to prevail.
To clarify for anyone who is not familiar with my previous publications, I use technical analysis to produce an investment view. Then I apply this view to create an applicable trading strategy. Technical analysis is a form on investment analysis that is based on the notion that historical price and volume data can be used to discern trends and forecast future prices. As a result, my analysis is heavily reliant on my ability to decipher the signals and indicators that are generated on a company’s stock price chart.
The following Tesla stock chart illustrates the indicators that are supporting the current advance in the share price.
Chart courtesy of StockCharts.com
The price action on the TSLA stock chart has been especially constructive. Constructive price action consists of a two-wave structure. This structure consists of impulse waves, which are highlighted in green on the chart above, and consolidation waves, which are highlighted in purple.
This wave structure allows a trend to remain sustainable, because the impulse waves serve to advance the share price and the consolidation waves serve to alleviate overbought conditions and set up the next advancing impulse wave. This alternating wave structure can propel an investment for an extended period of time.
I tend to focus a lot of my attention on consolidation waves because this is where the next advancing impulse wave is set to develop. The consolidation wave on the Tesla chart has been in development for nearly three years, and resistance at $280 has contained the price over that time. On April 3, on the back of a positive news release, TSLA shares surged higher and exited the consolidation wave in an upward direction. This feat is highlighted on the chart above as a “breakout,” and this price action suggests that a new impulse wave was now set to develop.
This wave structure is instrumental on many fronts and, aside from suggesting the next direction that the price is going to take, it can also be used to generate a potential price objective. This potential price objective is obtained by using the theory surrounding this wave structure. This theory states that impulse waves that are separated by a consolidation wave tend to mirror each other in terms of length. If we apply this theory to the price chart above, it creates a potential price objective of $420.00.
A new advancing impulse wave is set to develop and this view is supported by the moving average convergence/divergence (MACD) indicator, located in the lower panel of the price chart. MACD is a simple trend-following momentum indicator that uses signal-line crossings to distinguish between bullish and bearish momentum. This indicator has been very precise in identifying the predominant trend driving TSLA stock.
In December 2014, a bearish MACD cross was generated, indicating that bearish momentum was propelling Tesla shares and, as a result, the path of least resistance was geared toward lower prices. This signal confirmed that the bullish advance implied by the impulse wave had concluded, and it identified when the consolidation wave began its development.
In March 2017, a bullish MACD cross was generated, indicating that the bullish momentum is now propelling TSLA stock and, as a result, the path of least resistance is now geared toward higher prices. This signal suggested that the consolidation wave was nearing completion, and that a price advance was set to take place.
The bullish MACD cross, and the completion of the consolidation waves are acting together to suggest and confirm the notion that Tesla stock is now set to appreciate. This action suggests that a new impulse wave is now in development, and the run toward higher prices has begun. If I were to choose a top stock to watch in the second quarter of 2017, I would without a doubt have Tesla stock at the top of my list.
Bottom Line on Tesla
I am extremely bullish on Tesla stock because the confirming indicator I have been looking for has finally been generated and, as a result, I believe that much higher TSLA stock prices are in the horizon. This bullish view was produced by using the signals and indicators on the Tesla price chart and, until there are indications that another view is warranted, I will remain bullish.