Tesla has been one of the most compelling stories in the stock market over the past two to three years. The stock price moves have matched that excitement. As the company tries to wrest the auto industry away from the gasoline and gear paradigm to the IPhone on wheels model, skepticism and optimism have taken their turns at dominating the price movement of the stock. We’re not going to discuss the merits and future of the company, but we can make observations about the volatile price action.
As of Friday’s close, TSLA has again reached a price level previously visited twice over the past 30 months. Except for a sharp spike down last February (which we were fortunate enough to have been participants), the stock has roughly traded in a large rectangular range bound by the 180 level at the lower end and the 285 level at the top as indicated by the purple lines on the chart below. The specific bar on Friday’s close is a classic long legged doji candlestick which is indicative of indecision and is especially noteworthy at obvious areas of resistance. I’ve noted with purple ellipses the other times that such a bar formed and in both cases, they signaled a retreat of stock prices over the ensuing weeks.
For this pattern to be valid yet again, it is necessary for the next bar to confirm this level as an inflection point by closing below the low of the bar in question. Should next week’s bar be unable to make much progress into the range of this week’s bar and subsequently closes below the 272 level, the probability of at least an interim top will be in place for TSLA. If instead, prices manage to move up and take out the high of Friday’s bar, we expect prices to go substantially higher.