Tesla, Inc. (TSLA) just wrapped up a spectacular year, with shares rising nearly 26% to an all-time high above $400. The torrid advance was even stronger than it looks at first glance, with an incredible 125% surge in the last seven months of 2019. It also ended the year on a highly positive note for long-term shareholders, with Trip Chowdhry of Global Equities Research placing an astronomical 2030 price target at $4,000.

Even so, ecstatic buyers have grown complacent in recent months, with many late-to-the-party bulls jumping into sizable positions at lofty and potentially unsustainable price levels. A reality check is certain to follow this buying surge, warning shareholders that Tesla needs to back up 2019's impressive string of positive news with expanding production and healthy worldwide sales or risk lower stock prices.

That risk awareness needs to take hold quickly because the company will report fourth quarter deliveries and production figures later this week. Tesla just delivered its first China-made Model 3 to great fanfare, but it will take time to ramp up the company's new facilities in the Asian nation. In the meantime, the trading crowd needs to settle for domestic numbers, which have grown at a painfully slow rate due to chronic start-up issues.

There are also technical reasons to be cautious in the coming weeks, despite December's surge to an all-time high. For starters, accumulation has failed to keep up with bullish price development, setting off a bearish divergence that raises the odds for a failed breakout. In addition, straight up price action since June has left behind an unfilled gap between $260 and $290, with that price zone marking the only obvious support level if the stock enters a multi-week correction.

TSLA Long-Term Chart (2010 – 2019)

Long-term chart showing the share price performance of Tesla, Inc. (TSLA)
TradingView.com

The company came public at $19 in June 2010 and rallied quickly into the mid-$30s. That level marked resistance into a 2013 breakout that attracted intense momentum buying interest, lifting the stock into the $280s in the summer of 2014. It then settled into a 148-point trading range, ahead of a secondary breakout just six months after the 2016 presidential election. This surge stalled in the $380s in June 2017, giving way to another massive range.

The stock broke range support in May 2019 and plunged to a three-year low in June, while a quick recovery into July settled at new resistance. Tesla stock reentered the trading range in October in reaction to upbeat third quarter metrics, printing a 30-point continuation gap that is often embedded within Elliott five-wave rally sets. Sure enough, price action entered the fifth wave of this bullish pattern in December, posting an all-time high at $435.31 less than one week ago.

The monthly stochastics oscillator dropped into the oversold zone three times in 2019, highlighting climactic selling pressure ahead of the renewed uptrend. The latest buy cycle has now entered the overbought zone for the second time since November, signaling persistent strength. The indicator is showing no signs of crossing over, so bullish signals remain fully intact as we enter the new decade.

TSLA Short-Term Chart (2017 – 2019)

Short-term chart showing the share price performance of Tesla, Inc. (TSLA)
TradingView.com

However, the daily chart reveals structural weakness that could presage a multi-week downturn. The on-balance volume (OBV) accumulation-distribution indicator topped out in 2017 following a long period of accumulation. It failed to break out during a 2018 test and rolled into a persistent distribution phase that ended at a six-year low in May 2019. Unfortunately, buying pressure since that time has failed to lift OBV back to the prior high, setting off a bearish divergence that predicts a reversal and potential failed breakout.

Elliot wave analysis of price action since June 2019 supports this view, with three rally waves and two corrections indicating that the pattern may be near completion. A Fibonacci grid stretched across the advance places the October continuation gap at the .382 rally retracement level, which is common in runaway uptrends. Finally, the first and fifth waves are roughly equal in length, which is another common occurrence when an Elliott-driven trend is coming to an end.

The Bottom Line

Tesla stock may be completing the last stage of a runaway uptrend, raising the odds for an intermediate correction that could eventually test the October gap below $300.

Disclosure: The author held no positions in the aforementioned securities at the time of publication.