Stars Aligned for Strong Tesla Rally

Bullish stars have finally aligned for Tesla, Inc. (TSLA) and CEO Elon Musk, raising the odds for a strong buy-the-news reaction following Wednesday's post-market earnings report. More importantly, the stock may now enter a period of healthy accumulation that brings 2017 and 2018 highs near $380 back into play. The first sign that sentiment has taken a bullish turn will be a buying spike that holds above resistance at $330. That could happen as early as the minutes following this evening's confessional.

Model 3 production issues have waned, while analysts wonder if Tesla can avoid a repeat of the setbacks that have brought the company's existence into question. However, that has been the least of Tesla's problems in recent months, with an erratic CEO showing little discipline with public statements. Musk's impulsiveness culminated with a now-approved SEC settlement that ends his chairship for two years and establishes a committee of independent directors to oversee his communications.

The formal layer between Musk and his notorious tweets may be the best news that long-suffering shareholders have heard since the Model 3 was first announced in September 2015. It could even have a greater impact on buying pressure into 2020 than activist short seller Andrew Left's decision this week to flip to the long side. In either case, it may be time for sidelined players wanting to own this company to take the plunge.

TSLA Weekly Chart (2013 – 2018) 

The automaker broke out of a two-year ascending triangle pattern in 2013, attracting a strong momentum bid that carried more than 200 points in less than one year. It stalled above $280 in 2014 and eased into a trading range with support near $180, ahead of an April 2017 breakout and uptrend that reached $387 in June. The stock has struggled badly since that time, failing September 2017 and August 2018 breakout attempts while sell-offs have grown more destructive.

The weekly stochastics oscillator hasn't reached the overbought level since the last rally wave stalled in June 2017 (gray box). It has carved a complex set of mini sell cycles since that time, reaching the oversold level for the third time in 12 months in early October. It has now crossed into a buy cycle that could exhibit strong persistence, underpinned by the stock's fourth successful test at the 200-week exponential moving average (EMA, green ovals) since the 2010 public offering.

TSLA Daily Chart (2017 – 2018)

However, shareholders should expect major setbacks along the road to victory, with the on-balance volume (OBV) accumulation-distribution indicator stuck at the lowest low since February 2016. It will take months of buying pressure and improved sentiment to lift this measurement back to the all-time high posted just four months ago. At a minimum, it tells us that many market players will keep their powder dry until Model 3 sales figures can be evaluated.

For now, traders can use the Fibonacci grid stretched across the 13-month trading range to uncover key zones of conflict, with the unfilled Aug. 17 gap between $327 and $334 situated right at the .618 retracement level (red line). This price zone marks the first upside target and major inflection point for the recovery rally, with a buying surge above $335 shifting power from over-aggressive bears to chastened-but-optimistic bulls.

The Bottom Line 

Tesla's bearish price action into October 2018 could signal a major climax, ahead of a powerful recovery wave that tests resistance in the $380s.

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