TSLA Stock: Concerns Alleviated
I have some merry news to share with regards to Tesla Motors Inc (NASDAQ:TSLA) stock. In my last report, I outlined that TSLA stock was sitting on an important level of support at $180.00 and that it needed to hold that level or else a precipitous decline could have manifested.
The festive news I have to share is that TSLA stock held that level of support, so that precipitous decline I was so worried about can now be dismissed. In the process of relieving these bearish anxieties, Tesla stock has completed a bullish pattern that I outlined in that same report. This festive and joyous price action has caused my view on TSLA stock to take a 180 degree turn, and I am now bullish on this investment.
The following Tesla stock chart illustrates the important level of support that was being tested.
Chart courtesy of StockCharts.com
The Tesla stock chart above illustrates the trading range that has effectively confined price for nearly three years. Price has effectively oscillated between these levels of support (highlighted in green), and resistance (highlighted in black). Each subsequent test of one of these levels has resulted in a price reversal.
In my last report, TSLA stock was testing support, and any time a major level is being tested for as many times as Tesla stock tested this one, my interest is piqued and anxiety levels are raised. This trading range will not last forever. One day, one of these levels highlighted above will give and a new trending move in TSLA stock will develop as a result.
A break below support would have soured investors’ moods as it would mean that a long-term top had formed in TSLA stock, and a bear market would be under way. Holding support would mean more of the same range bound trading.
The lower panel labelled “MACD” only served to increase my levels of anxiety as support was being tested. The moving average convergence/divergence (MACD) is a simple and effective trend-following momentum indicator. Line crossings are used to distinguish between bullish and bearish signals. In late 2014, a bearish MACD cross was generated, indicating that bearish headwinds were swirling, and as a result, the path of least resistance is lower.
MACD has now come down and is approaching the zero line. Although this signal is still bearish, this is where a bullish signal could develop. If TSLA is going to test resistance at $270.00 once again, it would cause this signal to cross in a bullish manner.
The following TSLA stock chart illustrates the bullish pattern that is now suggesting that higher prices are in order.
Chart courtesy of StockCharts.com
As Tesla stock was testing support I outlined that the pattern above was potentially setting up. If TSLA stock was able to break out of the consolidation in a bullish manner it would suggest that bullish tailwinds have once again begun to swirl around the stock and that higher prices would be in order.
That scenario played out exactly, and on December 20, 2016, price closed above the consolidation wave and this event is highlighted as a “breakout” on the chart above.
This pattern is extremely constructive because it illustrates that the move off of the lows in February was an impulse wave. This impulse wave contained a price surge of $130.00 that spanned a mere six weeks. The next eight months, TSLA stock traded lower within a consolidation wave unwinding the overbought condition that was created. This wave was also essential in setting up the next impulse wave that is to follow.
The great things about these patterns is not only do they outline the direction of the next prevailing move but they also provide a potential target price. The theory behind impulse waves that are separated by consolidation waves is that the proceeding wave should match in terms of length. If this is the case, another $130.00 impulse wave can be expected and this would project a potential price objective of $310.00.
This objective is beyond the scope of resistance, so it could mean that Tesla stock is about to embark on quite the epic run as this would open the door to much higher prices. At this exact moment, this is only speculation and I would only be looking for a test of resistance at $270.00 as my first objective.
Bottom Line on TSLA Stock
My anxieties surrounding Tesla stock have been lifted, and as a result, I am bullish on this name. My bullish views are based on the bullish pattern that has just executed, and as long as price remains bullish and constructive, so too will my views on TSLA stock.