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TSLA Looks Exhausted; Flashes a Reversal Signal

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A few months ago, SquishTrade wrote a bearish technical analysis on TSLA that forecasted a drop to a series of targets that were all reached. TSLA's downward move was more violent and rapid than anyone may have expected. Indeed, TSLA broke down from a huge head-and-shoulders pattern. Supplementary Chart A is the head and shoulders pattern that broke through its neckline in October 2022. It backtested and chopped for a bit, then fell like a stone. What seemed to be a move that would take several months to a year happened in about 2 short months.

Supplementary Chart A

Say It Ain't So, Tesla Is a Heartbreaker!

Now, meme mania and the most-shorted stock list has lead the massive rally from October 2022 lows. This list includes stocks like TSLA, and investors filled with fear of missing out on the next massive moon event have piled into this stock. They've been helped by short-covering hedge funds who were like pigs lined up at the feeding trough but gorged a bit too long for their own health.

TSLA now looks exhausted. Note that this does not mean it heads straight back to lows. It could—it already made an unexpectedly massive down move from October to December 2022, and that was after a not so pretty decline in the first half of 2022. Markets and major stocks have been inflicting pain on traders of all stripes this year, so even if TSLA decides to make new lows underneath 2022 lows, it may not do so in an obvious or expected fashion.

Several technical points suggest that price will soon reverse. TSLA's price has likely exhausted this current rally higher. What happens next depends on the broader equity markets' direction, the nature of risk appetite relative to risk-free assets (government bonds such as the 10-year Treasury note, the 30-year Treasury bond, the macro environment (inflation, recession, price of money / interest rates) and TSLA's fundamentals as consumers' spending power likely begins to suffer from the rising price of money.

Note the orange rectangle, which is a major supply and resistance zone. Price has rallied right up to it without consolidating for any significant time beyond a day or two. This major resistance (formerly supply under the concept of parity) coincides with the 50% retracement of the last major wave of decline (green line).
A gravestone doji, evening doji star, shooting star, or spinning top has formed. Each candlestick pattern mentioned could be applied to this (perhaps the spinning top is a stretch). But the label isn't as important as what the implication it provides. It shows indecision right at a time when major resistance has been reached. Indecision is not the kind of state in which price action should be when it approaches such a significant level. But it arrived here too sharply, too fast. So it's exhausted right when it shouldn't be, right when extra momentum and vigor is needed for buyers to push through this level. Note that patterns containing the term "star" are not valid unless a third confirmation candle pushes down into the body of the candle that preceded the star.
A negative divergence appears using the Bollinger Bands. The divergence is more apparent using the %B indicator rather than the Bollinger Bands themselves. This shows that while price has made higher high on February 8-9, 2023, in terms of standard deviation, the high is actually a lower high as shown by the fact that the Bollinger Bands were not pierced by the highs over the last few days. Further explanations appear on Supplementary Chart B below.

Supplementary Chart B

Next, consider price targets, assuming price reverses here or a just bit higher. The most obvious target is the 50% to 61.8% retracement of the current rally. Those Fibonacci levels lie on either side of the huge gap fill area, another obvious target, shown by the magenta rectangle on the Primary Chart. The list of price targets follows:
Target 1: $200 (most conservative)
Target 2: $171.14 (somewhat conservative)
Target 3: $157.91 (moderately aggressive)
Target 4: $144.67 (fairly aggressive)
Target 5: $125.82 (aggressive)

No one can be certain in trading, investing, and forecasting. But traders can be sleuths, examining the charts for bits of evidence to see if they tilt the probabilities in one direction or the other. The probabilities here are tilted lower in the short-term and intermediate term. Yes, price could pull back and then make a higher high after that, or price could pull back and fall to retest / break December 2022 lows. A linear regression channel from the highs suggests that the downtrend could continue this year, but that is not as certain as the likelihood of a near term reversal and decline in price that ends the current rally.

Finally, consider the long-term view. The uptrend remains intact. But don't be deceived by that if you bought at $150-$180 over the last couple weeks and are counting your profits. The uptrend line remains down at $39-$45 depending on the time when it would be tagged (over the remainder of 2023).

Supplementary Chart C

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Author's Comment: Thank you for reviewing this post and considering its charts and analysis. The author welcomes comments, discussion and debate (respectfully presented) in the comment section. Shared charts are especially helpful to support any opposing or alternative view. This article is intended to present an unbiased, technical view of the security or tradable risk asset discussed.

Please note further that this technical-analysis viewpoint is short-term in nature. This is not a trade recommendation but a technical-analysis overview and commentary with levels to watch for the near term. This technical-analysis viewpoint could change at a moment's notice should price move beyond a level of invalidation. Further, proper risk-management techniques are vital to trading success. And countertrend or mean-reversion trading, e.g., trading a rally in a bear market, is lower probability and is tricky and challenging even for the most experienced traders.

DISCLAIMER: This post contains commentary published solely for educational and informational purposes. This post's content (and any content available through links in this post) and its views do not constitute financial advice or an investment or trading recommendation, and they do not account for readers' personal financial circumstances, or their investing or trading objectives, time frame, and risk tolerance. Readers should perform their own due diligence, and consult a qualified financial adviser or other investment / financial professional before entering any trade, investment or other transaction.

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If TSLA closes within the real body of candle 1 of this pattern, then the pattern is confirmed.

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The third candle of the pattern formed as expected. When this was published yesterday, only 2 of the 3 candles of the pattern had formed. The third candle pierced into the real body of the first candle, which confirms the completion of the pattern. Note the pattern doesn't always work, but risk is measured from the red line at the high point of the pattern.
Rarely is it prudent to trade just a candlestick pattern as many can be hit-or-miss in terms of odds. But combining the pattern with an extended price trend that has run right into resistance can be helpful.
Have a good weekend

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Reminder: just because a good reversal pattern forms doesn't mean that bears are safe yet. If this price action wanted to be devious and inflict pain, it could do something like this before going to the targets.

Trappy action at turning points is always a possibility to inflict pain on early bears (or early bulls at turning points in downtrends).

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TSLA reversed lower from the evening star, or shooting star, pattern. But after that reversal, the February 10 update cautioned that trappy action at turning points is common to inflict pain on early bears.

Price seems to be following the path below at least for now. The bull trap has already occurred. TSLA formed an exhaustion and reversal pattern with the daily evening doji star. Now it's back and pushing above the prior high, which may be forming a marginal new high to trap bulls even as price remains exhausted to the upside. The chart from February 10 is reposted below:

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Note the divergence in RSI. This could get erased if TSLA squeezes even massively higher from here, but that seems unlikely to me. But given its daily expected move, it could push a bit higher before reversing. Wait for confirmation before taking a short.

This chart also includes updated price information. Price has moved along the trappy path discussed as a possibility in the Feb. 10 update.

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Target 1 at $200, the most conservative target, has been reached. Today's intraday low was $198.97. TSLA is finding support at that level. For bears to get to the 180s and maybe 170s, this support needs to break. TSLA is stronger than the indices today, no surprise given retail and institutional FOMO lately. Can't just assume it will drop straight back to lows here. It may just be consolidating vigorously for a while. We'll see.

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This price path posted last week on 2/10 was intended to be hypothetical -- but also to present the real possibility of trappy action as the stock exhausts and turns. Price has actually followed the path far better than anticipated. That doesn't mean the remainder of the path is definitely going to play out exactly as presented, the odds of nailing every turn and the precise angle are just too low.

But the reversal is definitely in play, we'll see over the next few days if the consolidation finds some serious support

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Today's price action continued to show weakness in line with the technical argument in the original post. The close was $197.37.

Hourly chart below:

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If the selling picks up steam over the coming days through the end of the month, however, it will be important to keep an eye on uptrend channel support shown below:

More aggressive downside targets can be viable if this is broken. If not broken, then maybe the FOMO rally has a bit further to run with yet another high before the reckoning. No one knows the future, but bear markets are characterized by a lot of confusing price action and violent rallies, and this might not be over yet. This channel support will give us more clues.

トレード終了: 利益確定目標に到達

–11.8% move from the highs with an intraday low around $191 today. Buyers appear to be stepping in at the bottom of this channel. SPX is at similar uptrend channel support, which makes this an important level this week.

Gut feeling is that bulls may not be done until the spring. But anything can happen. As long as SPX is under 4000, and making lower lows, risk of a decline increases into early March. But today, 4000 level on SPX is not giving up easily, and it probably won't unless data points are really bad on Friday (GDP / PCE / Jobs)

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Some of the updates (e.g., Feb. 10, Feb. 17 updaters) showed the potential for trappy action. Trappy action has occurred. Early bears were trapped first. Then greedy bulls got hit second after price pushed to a new high but failed to follow through, and showed some modest weakness down to $191 on Feb. 22.

Now, price has pushed right back into a key resistance area near $208-$210. If TSLA can hold below $208-$210 early this week, it may soon move down to hit $184-$185. This would be another -10% move. At that point, TSLA will have reached a measured-move area. And it's weakness appears consolidative so far, so depending on the divergences, it may be ready for another bounce (yes, hard to believe with the macro being what it is) and this whole period of weakness will be consolidative and provide a base for TSLA to reach it's February highs again at least, maybe a bit higher.
ST remains intermediate term bearish on TSLA though! It's just going to be difficult to catch the timing when this volatile mover will make new lows. Just look at its selloff in December (bears had very little chance to get in) and the rally in January / February (bulls had very little chance to take a prudent entry.

トレード終了: 利益確定目標に到達

The Feb. 27 update noted that if TSLA could hold under $208-$210, as it had been, then it might fall another -10% to $185. It reached a low of $186 today. Close enough for success on this forecast. Closing out this idea. Equity markets look ready to bounce / rally in relief into March, perhaps April, we'll see.

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This idea was closed too early despite being a good move. It's good to know that the signals work at times properly, and the technical evidence we learn to watch does have value. TSLA chopped longer than expected around the $200-$210 level before making its pullback to low 180s.

One veteran futures traders says that traders should never attempt to catch 100% of every move. Thinking that one should catch every part of every move is a myth that leads to undisciplined exits, sometimes loss of profits after one exited too late.

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has seen continued weakness after that little reversal candle, supply zone, and key Fibonacci level started causing problems for bulls. Earnings didn't help yesterday. Watch the gap in the 150s for support into FOMC on May 3, 2023. The key Fibonacci level was at $208.24 (.50 retracement) shown in green on the Primary chart, right around recent swing highs from 2/16/23 and 3/31/23.