Tesla is a stock that best epitomizes the zeitgeist of the overall stock market for the past few months.  Despite a fair amount of skepticism, both Tesla and the general stock market continue to ratchet up. They have both surpassed inflection points briefly created by equivocating chart patterns.  We will discuss the nature of the overall markets in another commentary, but the present position of TSLA creates another possible inflection point similar to the one mentioned in our last Tesla post.

and the weekly

Our previous commentary noted the reversal candle pattern on the weekly chart, which did turn into a 30 to 40 dollar rout for the issue.  It did not however, reach our target at the 220 to 230 area before resuming its advance.  As warned, if the stock were to make a new high, it would go substantially higher.  Subsequent price action brought the price to a high of just under $330.  This phenomenon happens quite frequently in markets. Large pools of players contribute to price activity and price prints will create obvious areas of supply and support for institutional traders whom all look at the same charts.   If a bearish (or bullish) expectation is not realized, participants pile on the other way causing significant short covering rallies or massive liquidation.  The traders act like a mob all heading for the same door causing potential price spikes.

For this reason, price activity on TSLA is once again interesting.  While momentum indicators have yet to show convincingly negative, there are hints appearing that buyers may be in pause.  The first chart above illustrates the general decline in volume even as prices make new highs on the daily charts.  The weekly chart, shown beneath that, is hinting at a bearish doji inflection point which again indicates buyer exhaustion.  It’s important to remember that a series of bars are needed to confirm a pattern, so price activity over the next few weeks will support or eliminate this possibility.

With prices far away from the moving averages, divergent daily volume and a potential inflection point setting up on the weekly charts, it makes sense to expect some downside action in TSLA.  On the daily chart, an initial target is the 50 day moving average positioned at the $280 level.  A more protracted decline would target the $220 area on the weekly chart.

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