While the technicals thus far have indicated tsla still has further to fall, the past 2 days have changed things a bit. So I will give the bull case for why we could be at the start of a new rally and how I plan to trade it. At this time I don’t have any position in tsla. Please note that the bigger trend is still pointed down and will remain until we break the well-respected descending trendline leading back to the ATH.
Since Dec 28th, 2023, we’ve been in a steady downtrend with a small 17% retracement from Feb 5th - Mar 1st. The gap-up on Mar 18th and high volume retest of the 160 low on Apr 5th weren’t by themselves significant enough for me to justify a bottom just yet. But now that we have broken the descending resistance trendline on Apr 8th we should re-evaluate and see if we can justify at least a temporary bottom.
View attachment 1037103
Here’s what I like about the recent price action:
- Daily bearish divergence began forming on Jan 25th.
- Increasing daily volume led to the low on Mar 15th.
- Gap up on Mar 18th indicates support at 160.
- Failing to break the low on Apr 5th further indicates support at 160
- Breaking the resistance trend line Apr 8th signals a high potential downtrend has stalled
View attachment 1037104
Notice I labeled the retest on Apr 5th as Day 15 from the current bottom on Mar 18th. Now see the picture below which is the start of the May 2022 rally.
View attachment 1037105
Interstingly, during the May 2022 rally SP retested the low on the 16th day, which seems oddly coincidental given the structure of the move is also very similar to today. Look at the daily and weekly charts from May 2022 to today and notice the positioning of the 21 EMA and the 50 + 200 SMA relative to the SP.
Here’s what I don’t like about the current setup:
- Volume and candle setup on the weekly chart are not conducive to a strong reversal
- While daily volume picked up slightly towards the bottom, it’s nothing significant
- There was no significant daily reversal candle
- The 50 SMA is below the 200 SMA on the daily chart and both moving averages are above us. Getting above these moving averages and the 50 to cross back above the 200 is doable but it will take a lot of momentum. I’m not sure this bottom setup is capable of pushing us that far up (see what happened between May-Sept 2022).
- If this is the start of another rally, without a significant reversal candle, like we had on Jan 6th, 2023, we will be encountering many bumps along the way up. There could be several sharp pullbacks, as we’ve already seen between Mar 26th - Apr 5th.
Having recognized the similarities to the May-Sept 2022 rally, I’ll be using this as a reference and watching for similarities and differences. We may end up looking nothing like that rally, but for now, there are several similarities.
I won’t be doing anything this week. If we close the week up and above the descending trendline leading back to Dec 28th, I’ll look to enter a position in the next week or two. It’s possible there won’t be any significant pullbacks to buy on, but with the current setup, I’m inclined to think there will be. Nonetheless, I’ll tread with caution and watch for resistance. If we can break past $206, several resistance zones may converge with one another and create a strong pivotal point around $220.
View attachment 1037106