Tesla Stock: Testing an Important Level of Price Support
Tesla Inc (NASDAQ: TSLA) stock is trading substantially lower following its earnings announcement that came after the bell on Wednesday, November 1. This earnings announcement was filled with a slew of mixed news. Tesla managed to beat on the top line but fell short of bottom line projections, coming in with a larger than expected loss. The company continues to overpromise and underdeliver in terms of production numbers. As a result, investors are growning impatient and have currently pushed TSLA stock lower by 7.29% in response.
The question many might be pondering is whether this sell-off is providing an opportunity to pick up Tesla stock on a pullback, or if this is the beginning of something more sinister involving a prolonged move towards lower prices.
I can help shed some light on this situation using technical analysis. This method of investment analysis uses the company’s stock chart to garner signals and indications, which can then be used to speculate where the stock price is heading next. I have been using this method for nearly two decades, and have become quite proficient in applying it to my trading strategies.
Based on my interpretation of the company’s stock chart, I still have the inclination to believe that a bull market is still in development, but it is predicated on the notion that the TSLA stock price remains above a key level of price support.
This level of price support is illustrated on the following Tesla stock chart.
Chart courtesy of StockCharts.com
This TSLA stock chart illustrates the significant level of price support that I am referring to. This level currently resides around $290.00.
Prior to becoming a significant level of price support, this level acted as a significant level of price resistance. This level of resistance was first established in September 2014, and for the next three years, it thwarted all attempts to move beyond it.
It wasn’t until April of this year that Tesla finally gathered enough strength to break above this price point. When a significant level of price resistance is broken, it becomes a new level of support. This level is currently being tested following the disappointing earnings report.
Returning to test a previous level of resistance is very common, and this price action is referred to as a backtest. A successful backtest serves to reaffirm that the original break above resistance was legitimate, while simultaneously establishing the level as support.
In order to maintain the bullish view that was established in April when Tesla stock broke above resistance, it must remain above it on a sustained basis.
The following Tesla stock chart illustrates the indications that were generated earlier this year that remain in bullish alignment, which continue to support the notion that a bull market is still in development.
Chart courtesy of StockCharts.com
Earlier this year, a couple of bullish indications were generated, which indicated that a move towards higher TSLA stock prices was on the horizon.
The first indication was generated in March when a bullish moving average convergence/divergence (MACD) cross was generated.
MACD is a momentum indicator that is used to distinguish between bullish and bearish momentum. This indication is very influential and in order to stage a move towards higher stock prices, bullish momentum is a requirement because bullish momentum creates an environment that is geared toward higher stock prices.
The second indication was generated when Tesla stock exited the consolidation wave in an upward direction.
A consolidation wave is one of two waves that necessitates constructive price action. A consolidation wave creates the necessary condition where an advancing impulse wave can develop. The impulse wave defines the stage in a bullish trend when the stock price stages an advance toward higher stock prices.
The completion of the consolidation wave implies that a new impulse wave is in development, and therefore, one can expect the share price to stage an advance towards higher TSLA stock prices.
As long as the MACD indicator remains in bullish alignment and the stock price does not re-enter the consolidation wave, I can only assume that a bull market is still in development. This reaffirms the notion that Tesla stock must maintain its stature above support, which currently resides around $290.00.
Tesla stock sold off following a disappointing earnings report, but despite the sell-off, I still have the inclination to view this investment with a bullish bias because a number of indications on the stock chart remain in bullish alignment, supporting the notion that a bull market remains in development.