Shares of Tesla Inc. have powered up more than 11% in the past four days to close Friday back above the widely watched 200-day moving average, to fuel hopes that the 2023 uptrend has resumed after a rough couple of weeks.
But before bulls start backing up the truck to go all in, one of the first lessons of chart-watching is that there’s always a bigger trend to respect, and for Tesla’s stock, that bigger trend is still down in a big way.
On Friday, that stock
TSLA,
closed at $219.96, above the 200-DMA, which extended to $219.06. On Monday, the stock rallied 1.6% in premarket trading, while the 200-DMA ticked up to $219.49.
Many view the 200-DMA as a guide to the longer-term trend. So while Friday’s rise back above it is certainly a positive technical development, the bullish effects are still likely to be just shorter-term in nature.
Tesla’s stock bulls reclaim the 200-day moving average.
FactSet, MarketWatch
But first, the good news
The stock had been tracking a nice uptrend since bottoming at about a 2 ½-year intraday low of $101.81 on Jan. 6. Then after a bad earnings report, the stock broke the uptrend line, and dropped below the 200-DMA.
Friday’s accomplishment was the first sign that bulls are trying to reassert their authority.
Don’t miss: Tesla’s broken ‘triangle’ warns of more stock-selling pressure.
Keep in mind that the stock’s fall from the July 19 intraday high of $299.29 to the Oct. 31 low of $194.07 retraced about 53% of the Jan. 3-to-July 19 rally. As Wall Street followers of the Fibonacci ratio will tell you, if a retracement stays roughly within 61.8% of the previous trend, that previous trend remains intact.
Read more about how many on Wall Street use the Fibonacci ratio, which is also known as the “golden” or “divine” ratio.
Now comes the hard part
The bulls have what should be a pretty heavy resistance zone to deal with just above, which is defined by the price gap between the Oct. 18 low of $242.08 and the Oct. 19 high of $230.61, the key 50-DMA that was at about $245 on Friday and the broken uptrend line that extended to roughly $246.
Downside price gaps — when a stock opens below the previous session’s low, and stays below it all day, are often resistance areas, as those who missed the chance to sell may not want to pass up a second chance. Broken uptrend lines and the shorter-term trend tracker the — 50-DMA — often act as target points for those looking to sell on a rally.
There’s a key resistance area for Tesla’s stock just above.
FactSet, MarketWatch
But now the bad news for bulls
Even if Tesla’s stock was able to recapture that 2023 uptrend, it would take a further rally of at least 13% from the broken uptrend line to even threaten the much bigger downtrend that started two years ago.
As of Friday, the downtrend line starting at the Nov. 4, 2021, all-time intraday high of $414.50 and also touches the highs in January and April 2022 and July 2023 currently extends to about $278. (It only takes three points to make a trendline, but a fourth point adds to the strength of the trend.)
And finally, the 61.8% Fibonacci retracement of the selloff for the all-time high to the Jan. 6, 2023 low — a $312.69, or roughly 75% plunge — would come in around $295. That’s roughly where the bounce off the Jan. 6, 2023 low ran out of steam, confirming the bears are still in control for the long term.
The 61.8% Fibo of the 2-year downtrend had capped the bull’s last try to recapture long-term control.
FactSet, MarketWatch
So for Tesla bulls to really declare the two-year downtrend over, the stock would have to close above $295, and sustain those gains to confirm the breakout. From Friday’s close, that would require a further 34% rally.
A long-term target then becomes a full retracement of the two-year downtrend, which would be a further rally of about 41% from the 61.8% Fibonacci chart point.
Tesla’s stock has tumbled 13.4% over the past three months through Friday but has run up 78.6% year to date. In comparison, the Global X Autonomous & Electric Vehicles ETF
DRIV
has gained 12.3% this year and the S&P 500 index
SPX
has advanced 13.5%.
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