TSLA Stock: Watching Closely
Before any investment strategy can be created, I must determine whether I am bullish or bearish on the investment. When it comes to Tesla Inc (NASDAQ:TSLA) stock, I have been on both sides of this spectrum, and justifiably so, because there have been instances when Tesla stock has been trending lower and other times when TSLA stock has been trending higher.
I have been fortunate enough that the method I use to apply and create my trading strategies has correctly and appropriately identified these instances. I am currently watching the price chart, and there are indications that an enormous bullish breakout is on the horizon that will take the price of Tesla shares to new heights.
For anyone who is not familiar with my work, I determine my investment views using technical analysis. This method of analysis is based on the notion that historical price and volume data can be used to discern trends and forecast future prices and, as a result, the price chart is always where my analysis begins.
This method was instrumental in identifying a bullish trend reversal on December 20, 2016, and I outlined this dynamic in my published report titled “Tesla Motors Inc: TSLA Stock Chart Is Bullish Once Again.”
The following Tesla stock chart illustrates the indication that established my bullish view.
Chart courtesy of StockCharts.com
For most of 2016, I held a bearish view on Tesla because the price action and indicators supported and warranted this view. It was not until late November 2016 that I began to notice that the bearish price action was, in fact, constructive.
Constructive price action contains impulse waves that serve to advance the price, and consolidation waves that serve to alleviate overbought conditions and set up the next advancing impulse wave. The bearish price action that contained the price for much of 2016 began to behave like a consolidation wave.
If this was, indeed, a consolidation wave, then the price would exit the pattern in an upward direction, and another impulse wave would be set to develop.
On December 20, 2016, TSLA stock exited the consolidation wave in an upward direction, and this event is highlighted on the chart above as a “breakout.” This price action suggested that a new impulse wave was set to develop, and this suggestion came to fruition as Tesla shares quickly accelerated to the upside. The speed of this rally caught me slightly off guard, but the price it attained is exactly as I suggested in my previous report.
In that report, I suggested that the range of $270.00–$310.00 was attainable. This range was generated using the theory surrounding this wave structure. The theory behind constructive price action states that impulse waves that are separated by a consolidation wave tend to mirror each other.
After Tesla reached this price objective, a sell-off quickly ensued but, in the process of attaining this level, a bullish signal was generated.
The following Tesla stock chart illustrates the bullish signal that was generated, and the implications that it carries.
Chart courtesy of StockCharts.com
Tesla has been trading in a range for roughly three years, and the price has been oscillating between distinct levels of support and resistance. Resistance, which is highlighted in black on the chart above, stands just north of $280.00. Meanwhile, support is highlighted in green, and it sits just south of $180.00.
The Tesla share price has been contained within these levels, and every time time a level of support or resistance has been tested, the trend has reversed.
A bullish signal was generated early this year, and it is suggesting that a bullish resolution to this range is on the horizon. A bullish resolution to this range would suggest that much higher prices will follow. This signal is located in the lower panel of the chart above and is labeled “MACD.”
The moving average convergence/divergence (MACD) indicator in the lower panel is a simple trend-following momentum indicator that uses signal-line crossings to distinguish between bullish and bearish momentum. This indicator has been instrumental in identifying the predominant trend in Tesla shares.
In late 2014, a bearish MACD cross was generated, indicating that bearish momentum was propelling Tesla shares. As a result, the path of least resistance was geared toward lower prices. The signal confirmed that the bullish advance had concluded.
In early 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 geared toward higher prices. This signal confirmed that the bearish pressure that contained the price has subsided, and it opens the door for a bullish advance.
This bullish MACD indicator is suggesting that higher Tesla stock prices are on the horizon, and it also serves to increase the odds that the resistance level will be broken. A break above resistance would suggest that a new impulse wave was in development. If I were to speculate on a possible price objective, I would say that a confirmed break above resistance would see TSLA shares easily reach a level north of $500.00.
Bottom Line on Tesla
Tesla stock is correcting off of an impressive advance that began late last year. This advance caused a longstanding indicator to generate a bullish signal, which suggests that higher TSLA stock prices are still on the horizon. A successful break above resistance would indicate that a significantly large move to the upside has begun.