TSLA Stock: Patience Has its Virtues
It was a been a wild ride for Tesla Inc (NASDAQ:TSLA) stock, with the company having lost 20% of its value in just a few weeks, placing it in bear market territory. This swoon toward lower prices was exasperated following reports that the company is experiencing a shortage of batteries that is resulting in production shortfalls.
I can’t say for sure if this weakness in Tesla stock will persist, but what I do know is that I am watching key metrics that I would use to acquire TSLA stock on the cheap, if that opportunity ever does present itself.
I have been bullish on Tesla shares since last December, and I have outlined key developments since that point that have continuously reinforced my bullish view. Said view remains intact, but is has been slightly tarnished by the sell-off that has gripped Tesla shares. I am watching a particular price point because there are currently two metrics that are suggesting that this level is a key level of price support.
Fibonacci retracement numbers are a popular tool used among technical analysts and traders to identify countertrend levels of price support. The theory behind these numbers is that, once a primary move is completed, the stock price will retrace approximately 50%–62% of the prevailing move before the primary trend reasserts itself.
The following Tesla stock chart illustrates a tool that I use to identify key areas of price support:
Chart courtesy of StockCharts.com
This TSLA stock chart illustrated the tool in question, which is the Fibonacci retracement numbers.
Due to the popularity of this tool, the term “trading into the box,” was coined to describe the 50%–62% retracement. This box is highlighted on the price chart above. The box outlines that price support currently sits between $283.00 and $258.00. Savvy investors will use these levels suggested by the box to strategically enter and exit a respective position. This is an area where I would try to acquire a position if that opportunity would ever present itself.
At this juncture, TSLA stock has completed a 38.2% retracement, which could suggest that the recent price weakness has run its course. That would be welcome news for the bulls (and the market as a whole). But just in case this sell-off has further to run, it is always best to be prepared.
The following Tesla stock chart illustrates another metric that is outlining a similar key level of price support:
Chart courtesy of StockCharts.com
This TSLA price chart highlights a metric I am quite fond of in the 200-day moving average. This metric is created by averaging the closing price over the last 200 trading days and plotting that value on the stock chart. The 200-day moving average is used to distinguish whether an investment is in a bullish state or a bearish one.
Distinguishing between these two states is actually quite easy, and its it predicated on which side of the moving average the investment is trading. Trading above the 200-day moving average is bullish, while trading below it is bearish.
In late December, Tesla finally broke above this metric, which reinforced the notion that the investment was once again in a bull market. The stock price appropriately accelerated to the upside once TSLA stock was trading north of this moving average. Not only does this moving average suggest that an investment is bullish, it has also been known to act as a level of price support. The 200-day moving average currently sits at $259.51, which just so happens to coincide with the box associated with the Fibonacci retracement numbers.
These coinciding levels of price support suggested by two distinct metrics indicate that this price point is indeed significant, and therefore it shouldn’t be ignored. At minimum, I expect the stock price to bounce if these coinciding metrics are ever tested. I can’t say for sure if that opportunity will present itself, but, if it does, it is one that shouldn’t be missed.
Bottom Line on Tesla
I continue to hold a bullish view on Tesla stock, regardless of the recent headlines that have caused it to drop substantially from its highs into bear market territory. I am targeting the price point suggested by two distinct metrics as an entry point into TSLA stock if that opportunity should ever present itself.