Four months ago, using the Elliott Wave Principle (EWP) and technical analyses, I found that the Tesla (NASDAQ:TSLA) bears had fumbled the ball:
"... as the share price is now back above $625, its 50-day SMA, as well as the downtrend line that has kept the April bounce high in check. …. It follows that when TSLA trades above the 50d SMA and its 'cloud,' the odds are for good things to happen, i.e., higher prices, increase. Just look at the 2nd half of 2020."
Besides, back then, I found the Tesla's weekly chart showed:
"how price .. stalled twice at the blue 38.2% retrace of (blue) Primary wave-III. Again, this is a typical 4th wave level. The technical indicators … are also starting to point back up, with some encouraging developments. Thus, if the May low can hold, the bulls are in control, and the rally to $1,200 has started."
Fast forward, and Tesla is now trading in the low 1000s. Thus, the preferred forecast of much higher prices was correct. It is now time to assess if it is worth chasing up here or not. For that, I will use the weekly and monthly candlestick charts. See Figure 1 below.
Figure 1: TSLA weekly and daily candlestick charts with EWP Count and Technical Indicators:
The weekly chart in Figure 1A shows the additional price action since my update June 25 update. Tesla bottomed precisely at the 38.20% retrace of (blue) primary-III: classic 4th wave behavior (blue Primary IV). Moreover, the rule of alternation in EWP is fulfilled, because wave-II and IV were two different patterns: flat vs. zigzag, respectively. Thus, I must logically conclude primary-V is now under way. Besides, the technical indicators are all pointing up but getting relatively overbought. Therefore, a multi-week pullback should be anticipated soon before the price moves higher yet again. Lastly, the price is riding the upper Bollinger band – it has strength and is above its important simple moving averages (SMAs), which is a strong uptrend. Please note the weekly MACD is not making new highs and that divergence must be monitored.
The monthly chart in Figure 1B shows the same EWP count based on monthly (reversal) candles. Also here, we can see the picture-perfect wave-IV bottom and wave-V is now under way. Except for the money flow index (MFI14), all technical indicators are pointing up.
In addition, Tesla's price is well above the rising 20-month and 50-month SMAs, while sitting at the upper Bollinger band: long-term solid uptrend. Thus, I prefer to look high and expect $1,200 to be reached, but the MFI is telling us this uptrend is from a liquidity perspective, which is currently not strong. Since liquidity drives markets, it supports the notion that the current rally is a more considerable 5th wave.
Both charts show that once Primary V completes, an enormous cycle wave has concluded, and we should expect Tesla to drop back to around $300+/-200 during a multi-year bear market. Yes, I know, that may sound nearly impossible. But please remember, the EWP was already foretelling in June of a likely rally to $1,200. And here we are. Moreover, we also know with certainty that after wave-1 comes 2, then 3, 4 and 5. And when the 5th wave completes, expect a more extensive correction. Wave-4 came and went, so here is wave-5. And this wave-5 will most likely end a multi-year cycle-degree wave. So we must logically expect a multi-year cycle-degree bear market after that. Plain and simple.
The only bullish case I can make is that I am off by one wave degree. That will ultimately lead relatively soon to a significant correction, a big rally and still that ultimate cycle-degree bear market. However, the way we slice and dice it, the big bad bear is inevitable.
Disclosure: I am long Tesla.