Tesla Has Bulls Singing 'Breakout,' But Here's the Weekly Close I'm Watching
Elon Musk's electric vehicle company had one of the biggest single-day moves I can recall and a pivotal close is in reach.
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Tesla TSLA rewarded bulls on Thursday with one of the biggest single-day moves I can recall. A 22% pop to the upside has bulls singing "breakout," but any time we get a huge post-earnings move, it can be beneficial to step back and examine the perspective of the longer-term price action before jumping in long with both feet.
When we retract our view to the past 30 months, we see Tesla has been making a series of lower highs. Price has formed a wide pennant pattern. The higher lows aren’t as well-formed but have tightened since April with a sharper push higher.
This scenario is set up well for bulls. After the big push on Thursday, the stock may need time to digest the move higher; however, if we see a weekly close above $260, Tesla may once again become a beneficial member in the Magnificent Seven.
I would prefer a weekly close above $270, as the July high posed strong resistance earlier this summer. The rejection was fast and hard. Some buyers from that July move would likely feel relieved to exit a position breakeven.
In other words, traders who bought that July high and who still hold the stock are more likely to become “just get me out breakeven" traders. That is a psychological profile when a person buys a stock, immediately sees it drop sharply, yet continues to hold the position. Generally, they don’t want to take a loss. It is too psychologically damaging to their ego.
But they would be all too happy to exit a trade at breakeven if they held through the drawdown. That’s why I'm keeping an eye on $270. A close above $270 clears out all the “just get me out breakeven" folks.
Congrats to the bulls, but don’t get overly excited until we clear $270.
At the time of publication, Byrne had no positions in any securities mentioned.
