TSLA Stock: Embracing Weakness
I am providing a quick update on Tesla Inc (NASDAQ:TSLA) stock because I believe that the current sell-off that is gripping the equity markets is based on political rhetoric surrounding Donald Trump, which will prove to be a temporary speed bump. Previous dips have acted as an opportunity to acquire positions in your favorite companies, and I do not believe that this time will be any different. TSLA stock just happens to be one of my favorite investments, and this favoritism is due to the bullish ramifications that the TSLA stock chart is suggesting.
Yes, that is correct, I generate my views on a potential investment by analyzing the company’s stock chart. If you haven’t frequented any of my previous publications, it is worth noting that analyzing an investment based on the merits of a company’s stock chart is known as technical analysis. This method of analysis, which is popular among the trading community, is based on the notion that investments contain embedded trends and characteristics which can be used to project the future direction of price.
This beautiful piece of artwork, which is a price chart, is all the reason I need to be bullish on TSLA stock. This price chart contains two distinct indications that are suggesting that higher Tesla stock prices are likely to continue.
This is the exact method I used to generate my bullish view on Tesla stock, and the following price chart illustrates the indications that generated this view.
Chart courtesy of StockCharts.com
The first indication was generated by the bullish constructive price action that has been in development in recent years. Constructive price action is used to describe an alternating wave structure that is essential in creating a sustainable trend.
The first wave of this alternating wave structure is an impulse wave. This wave is highlighted in green on the chart above, and its purpose is to advance the stock price. The second wave of the alternating wave structure is a consolidation wave. This wave is highlighted in purple on the chart above, and its purpose is to unwind any extreme conditions and create the necessary backdrop so an advancing impulse wave can develop.
The breakout highlighted in April illustrates Tesla stock exiting the consolidation wave in an upward direction, suggesting that a new advancing impulse wave is now in development.
This bullish view of an advance is being reinforced by the second indication, which is a bullish MACD cross that was generated in March of this year. MACD is the acronym for moving average convergence/divergence, and this indicator uses a signal line to distinguish between bullish and bearish momentum. The bullish cross that occurred is implying that bullish momentum is now driving Tesla shares, and as a result, it creates an environment where the path of least resistance is geared towards higher prices.
This indicator has been extremely effective in confirming the predominant wave that is set to develop. A bearish cross in November 2015 effectively confirmed that a consolidation wave was in development, while a bullish cross has been effective in confirming that an impulse wave is in development.
These two distinct indications from the constructive price action and the bullish MACD indicator are strongly suggesting that a higher Tesla share price is a likely endeavor. Which means that any weakness in price can be taken advantage of.
The following Tesla price chart illustrates key levels of price support.
Chart courtesy of StockCharts.com
Once again, I am using two distinct metrics to define levels of price support on the TSLA stock chart. The only solace I can provide during this sell-off is that price support is not too far beneath the current stock price.
The first metric used to define price support is an uptrend line. This simple trend line is created by connecting the troughs on the stock chart. This trend line outlines the bullish advance that began in December of last year, and as long as Tesla shares are trading above it, I can only assume that higher prices will prevail. This trend line has been tested on a previous occasion, and buyers were more than willing to step in and support it.
The second metric is the 50-day moving average. This indicator is computed using the average price over the past 50 days, and it is used to gauge the health of an investment. In December, Tesla shares broke above this moving average, and a bullish advance was born. Since that fateful day, this moving average has been acting as a level of price support.
Both the uptrend line and the 50-day moving average are converging around each other, and roughly $10.00 separates them. I believe these levels of price support will halt the current weakness dead in its tracks and the bullish trend will resume soon after.
Bottom Line on Tesla Stock
I am bullish on Tesla stock because the indications on the TSLA stock chart support this view. I believe the current weakness in price will prove to be an opportunity, because the bullish trend towards higher prices is still in its infancy. My bullish view on TSLA shares is contingent on the stock price remaining above $280.00.