Technical Analysis: Is This Another Opportunity in Tesla Stock?

tesla technical analysis
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Indications Continue to Support Notion of Bull Market for TSLA Stock

Tesla Inc (NASDAQ: TSLA) stock has pulled back 17% from its high, and pundits are coming out of the woodwork, warning of a potential bear market once this pullback hits 20%. I believe that bearish views in this market environment are ill warranted and that anyone trying to vindicate a bearish view is going to trampled as the stock price stampedes right over them.

Aside from the bullish indications generated by the red-hot equity markets, a number of indications that were generated on the Tesla stock chart continue to suggest that a bull market is in development and that, therefore, any price weakness can be seen as an opportunity in TSLA stock.

I have been using these indications to generate a view on Tesla shares since late last year, and I became bullish on TSLA stock in December of last year as these indications finally began suggesting that a move toward higher stock prices were on the horizon.

In May, there were further developments on the stock chart which were suggesting that much higher stock prices were on their way. The following TSLA stock chart illustrates the technical developments which continue to suggest that the path of least resistance is in the direction of higher stock prices.

tesla stock chart

Chart courtesy of StockCharts.com

This Tesla stock chart has been annotated in order to highlight the constructive price action, as well as highlighting an influential momentum indicator. These indications are implying that a bull market is currently in development and that the path of least resistance is toward higher stock prices.

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Constructive price action consists of an alternating wave structure that contains impulse waves and consolidation waves.

The impulse waves, which are highlighted in green on the above chart, are characterized by a progressive movement toward higher stock prices. In a bullish trend, the positive returns are captured in this wave.

The consolidation waves are highlighted in purple, and they are characterized by corrective price action in which the stock price refrains from staging an advance. This wave serves to unwind any overbought conditions in order to set up the next advancing impulse wave.

Impulse waves and consolidation waves in an alternating-wave structure create the foundation for a trend to develop and sustain itself.

No bullish trend can exit without bullish momentum. The moving average convergence/divergence (MACD) indicator, which determines whether bullish or bearish momentum is influencing the stock price, has had an impeccable track record of implying when Tesla stock was set to appreciate via an impulse wave, or decline via a consolidation wave.

In March, a bullish MACD cross was generated, indicating that bullish momentum was once again influencing the trading action in Tesla stock. The stock smartly staged an advance and exited the consolidation wave in an upward direction. This event occurred in May, and it is highlighted on the above stock chart as a breakout. The breakout suggested that an impulse wave was in development and, appropriately, higher prices have followed.

The MACD cross remains in bullish alignment, which continues to suggest that higher TSLA stock prices are in development via an impulse wave.

The price action on the following stock chart illustrates that stock is currently testing a very important and influential metric.

TSLA stock chart

Chart courtesy of StockCharts.com

The important and influential metric that is currently being tested is the 200-day moving average.

The 200-day moving average is a popular metric that traders use to determine whether an investment is healthy and in a bull market, or if it is unhealthy and in a bear market. Trading above the average is bullish, and trading below it is bearish.

Tesla broke out above the 200-day moving average in December 2016, and it hasn’t looked back since. This was one of the first indications suggesting that a move toward higher stock prices was in development, and it currently continues to suggest that this investment is both healthy and in a bull market.

It is not uncommon for this moving average to act as an important level of price support, and it is currently being tested. This is, of course, within the context of the constructive price action that is highlighted on the above stock chart.

On the daily charts, Tesla stock is currently within the confines of a consolidation wave and, in order to suggest that higher stock prices are in development, it needs to exit this wave in an upward direction. I will be inclined to believe that such an outcome will eventually occur as long as the stock price remains above the 200-day moving average.

Analyst Take:

Tesla stock is down 17% from its highs and, even though it is very close to the 20% decline that defines a bear market, I have the inclination to believe that higher stock prices are still in development. This inclination is based on the indications on the TSLA stock chart, which supports the notion that a bull market is still in effect.