Is Tesla Stock Ready For Lift Off?
Day Traders Group | Aug 21, 2021 09:28PM ET
Tesla (NASDAQ:TSLA) finished Friday trading back below its 20 day moving average again, for the fifth time this week. TSLA gapped down on high volume Monday leaving a "break-away gap" in it's wake that has left an unfilled gap that has yet to be closed. TSLA's first challenge is to reclaim the 20 day moving average currently near 696.56.
The PMO (Price Momentum Oscillator) quantifies the current price with the previous price of the specified time period and is on a sell signal on the daily time frame. The KST also concurs and has also triggered a sell signal with a bearish crossover of the signal line.
Noteworthy also is the Relative Strength Indicator (RSI) on the weekly time frame has been trending lower while for the last 3 weeks price has been making slightly higher highs and higher lows, with the range getting tighter signifying a big move on the horizon. Generally, the break above or below the previous week foretells of the direction.
The chart below shows that diminishing momentum is synchronous with a depreciating price value with price now down -24.45% from the 52 week high in January (-25% is official bear market territory).
Descending triangles are a pattern that signals an imminent breakdown more often than an upside breakout. Decreasing volume accompanies these types of patterns as price approaches the apex. Here is a look at the weekly chart showing price being rejected from the top of a potential descending triangle which could still develop into a bullish symmetrical triangle :
Should price break out and close above $720 that would increase the probabilities of a measured move up to the next Fibonacci confluence of $785 or +15.5% higher, which would also increase the likelihood of the next Fibonacci confluence of $818 or +20.3% higher negating the descending triangle pattern and affirming a symmetrical triangle continuation pattern as price moves into the apex.
Zooming in on a shorter time frame (Daily) shows, at this time, an unconfirmed and rather chaotic potential Head and Shoulders topping pattern, not a perfect one but price has formed the essence of one and has printed out the characteristics of a Head and Shoulders Pattern. The pattern is still unconfirmed as price has yet to close below the neckline, which would increase the odds of a 0.618 Fibonacci support confluence test near $545 according to the basic principles of technical analysis.
The RSI on this time frame is struggling to regain above (50), reminiscent of last May (circled in red) where price slid from $677 down to $545 in just 8 days. That said, recent options alerts data suggests that one investor in particular spent $8M on Friday for September 2022 puts at $39.5 each with a $420 strike.
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Numerous other fairly large longer dated (September and October) call options positions were closed out near the highs of the day within 10 minutes of the open on Friday.
With a market cap of $673.5B, Tesla's price-to-earnings ratio for the EV pioneer is 170.93X vs other peers in the automotive industry average of 14.05X. Investors recognize that Tesla is much more than a car company and unlike Ford Motor Company (NYSE:F), General Motors Company (NYSE:GM), and Toyota Motor Corporation (NYSE:TM), Tesla is also a pioneer in robotics, automated driving technologies, energy generation, solar power storage and numerous other cash generating businesses across the globe.
A look back: TSLA was trading at $286 per share last year at this time. TSLA closed on Friday at $680.26 and is up +3,600% since Elon Musk took Tesla public in 2010. Had you invested $10 in Tesla 10 years ago, your original investment would have been worth $360,000 had you sold at Tesla's all time high.
The unabridged version of this article was originally featured in the Day Traders Journal
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