TSLA did end up holding up and forming the hammer reversal candle on the monthly chart. At the same time bears and agnostic traders looking at short/medium term resistance are selling 195-205. My view is that long term technicals always supersede shorter term ones - in this case long term reversal candle(that not many are looking at) > short term resistance(that everyone is looking at). This dynamic has the making of a bear trap especially if we get above 205. This would have been significant had macro markets obliged, but as is I wouldn't act on it until further confirmation.
One more thing, after TSLA's monthly reversal, I am now no longer willing to buy it on weakness, but rather will buy(add to) it on strength. This might be counter intuitive, but the reason is because TSLA is now set up technically to go higher - so when it confirms this and actually does go up I will press and be more aggressive. However, if it acts differently than it is "supposed to" and goes down instead, I will sell. Pulling back to 180 would be fine, but anything below 160-70 would ring alarm bells. On the other hand, if we break above 205, and especially 220(the original price I said I would reenter at) it would be major buys and tipping points for shorts.
Just to elaborate a little on the first part and what's happening right now.
When TSLA broke below 180 last month, it created a vacuum to the downside triggered by stop losses, weak hands selling, and shorts piling on. 180 was support for the past 2 years, so trading below it signaled a potential major breakdown and trend change. TSLA was already froth with bears and shorts, but this breakdown brought on selling(short) from even agnostic traders who have no inherent fundamental bias and are simply trading on technicals and price action. This is why you saw short % increase as opposed to decrease as price declined. Many of these agnositc traders sold through 180, and waited for a bounce to add on to their position. This is standard trading procedure, like longs buying, then waiting for a pullback to add more.
They use different methodologies to determine entry points to add to their short:
support/resistance - 180 as prior support turns into resistance once broken. Many shorted on the way back up to 180.
fibonacci retracement - many use this to determine the turning point. 180(38%), 192(50%), 205(61.8%) are all levels that traders will sell.
bollinger bands - mid band at 172, upper band at 207
So that is why they are selling, and where they are selling. They view a break of long term support of 180 as a change in direction for the stock, and use technical levels for entry into their short.
Trading like this works plenty of times, and I don't blame traders for it now. However, I believe they are wrong in this case. Even though they are correct that short/medium term technicals signaled a breakdown, which is their reason for shorting this bounce - they are missing what long term technicals are saying, the monthly hammer candle. For those unfamiliar with chart patterns and candlesticks, a monthly hammer is simply a bar on your monthly chart where a major decline is completely reversed and closes at or above where the month began, visualized in the shape of a hammer. Simply put what this visualization is telling you is that the breakdown was false - it was immediately reversed with no staying power. This is in accordance with the fundamental backdrop - the decline was due to fears of a freeze in the credit markets(tesla needs credit to grow) - those fears are now abating(look at xlf, hyg, db, cs).
So what you have now are traders shorting based on a false breakdown while oblivious to the long term technical reversal - a bear trap. If share price gets above 205 and stay above it, these agnostic traders/new shorts will start to exit - they have no inherent bias against TSLA, just in it for the trade. This exodus could bring share price to above 220 which would put pressure on the real bears and core shorts. This is the 20+ million shares that have been in for years and are short based on their fundamental views as opposed to based on price action. This contingent will only cover for two reasons: 1) a fundamental change - earnings 2) pain. That is why 220 starts to get interesting - that is when it starts to hurt.
