TSLA Stock: Eyeing the Trend Line
Tesla Motors Inc (NASDAQ:TSLA) announced its earnings after the market closed on October 26, 2016 and, surprisingly, the company posted a profit when a loss was expected.
Initial reactions saw TSLA stock jump over $10.00, to approximately $215.00 a share, before cooler heads prevailed. The headline numbers were not all they seemed to be, as all of the profits that Tesla stock earned in the quarter were due to zero-emission credits.
I am mentioning the stock price because price will be the catalyst for the next move in TLSA stock. The bulls are hoping that a major level of resistance is broken, so they can once again rejoice and signal that the Tesla party continues.
I have been using price as the basis of my trading strategies for over a decade, and have had great success in doing so. The body of knowledge surrounding price as a catalyst is known as technical analysis, and the following evidence supports the notion that a break above a key resistance level is needed for any bullish price action to resume.
The following Tesla stock chart illustrates the price action over the last four years.
Chart courtesy of StockCharts.com
In 2013, Tesla stock broke out of a trading range, and the price quickly surged from below $40.00 to a high of $291.42. After the run-up in price, TSLA stock proceeded to trade within a range for approximately three years. The trading range is bound by closing levels above $185.00 and below $270.00. This range is highlighted on the chart above by support and resistance lines.
There have been breaches of this range, but none have occurred on a monthly closing basis. As a result, a breakout of this range would occur when the price closes outside this range on a monthly closing basis. This feat will dictate the next trending direction in TSLA stock.
Moving average convergence/divergence (MACD) is a simple and effective trend-following momentum indicator. Signal-line crossings are used to distinguish between bullish and bearish signals. A bearish signal confirms that the bears are in control of TSLA stock and that the path of least resistance is lower. This indicator turned bearish in December 2015, and the trading range has continued to confine trading. As long as the indicator remains bearish, the odds of a break below support remain elevated.
The following chart illustrates the key level of resistance that must be broken for the bulls to gain the upper hand.
Chart courtesy of StockCharts.com
The chart above illustrates the price movement year-to-date. 2016 started off with volatility, as Tesla stock originally dropped and then popped. The pop was characterized by an impulse wave that contained a rise from $140.00 to $270.00. The length of this was $130.00, and this number will be very important as the next impulse wave to develop is expected to match this one in size and duration. Yes, that is correct: a move of $130.00 can be expected, but only after certain criteria are met.
The trend line highlighted on the chart above is a downtrend. This trend line has acted as a key level of resistance that has contained the price following the impulse wave. After earnings were released, this trend line was once again under attack. This is the line that bulls require Tesla stock to break.
A break of the trend line would be a glorious feat for the bulls, as this would open the door for another impulse wave higher. If this occurs at this level, a potential price objective would be $310.00 and would cause a MACD bullish cross, breaking Tesla stock out of the massive trading range that has developed.
I have to question this outcome, because I have yet to find any other bullish signals that would indicate that other bullish tailwinds are prevailing. All I have to go on is the price, and TSLA stock needs to close above $213.00 this week for this scenario to come to fruition.
The Bottom Line on Tesla Stock
I am neutral on Tesla stock, as the bearish headwinds continue to prevail and trading is dominated by the large trading range. If TSLA stock can close above resistance, my bias will abruptly change to bullish, while a close on a monthly basis below $185.00 would put me squarely in the bearish camp.