Tesla: A Holy Sh*t Moment

When I look at charts, I'm looking for patterns that I think the most eyeballs will identify. Because in technical analysis, the idea is the more eyeballs following say the 50 day/200 day cross over signal, the more people will trade it, and the more people that trade it, the more likely the signal works (self-fulfilling prophecy much). It's the reason why technical analysis doesn't apply to illiquid penny stocks, because there are no eyeballs on illiquid penny stocks.

The best technical analysts keep it simple. They tend to rely on 1 - 3 indicators that work well for them. For me, those three indicators are price, sentiment, and fibonacci retracements/extensions. These are the tools I use to measure the supply and demand of any given stock.

After reviewing some charts from late last year, I had a holy sh*t moment. I missed what was staring me right in the face. Enter Tesla. Such a battle ground stock. I have no dog in this fight, and see both sides of the story (amazing cars, reduce carbon footprint vs. shady corporate shenanigans, eccentric CEO). This is why charting and technical analysis is the absolute most useful tool for investors. It cuts through all the noise and helps eliminate emotional/irrational thoughts from your investment decision process. That's because technical analysis focuses on the only thing that matters, price action. 

I hate to break it to the $TSLAQ bears, but you may wake up in a world in the not so distant future where Cathie Wood of ARKK is full blast on every financial news network explaining why Tesla trading at $1,028 is still a bargain relative to her $4,000 price target. And I know this not because I meticulously track model 3 deliveries, solar panel developments, and self driving car capabilities, but because I measure the supply and demand of the stock by analyzing price, sentiment, and fibonacci extensions. So, here is my aha moment on Tesla, where I now see so much more than I saw just two months ago. 

First, can we just LOL at the bottom left corner of the chart for a moment? Look at that unfilled gap. That's just a massive middle finger to the bears. I can only imagine the number of shorts trapped in that 2013 squeeze saying, "but there's still a gap to fill! And gaps always fill!" Nope, sorry. Nothing ALWAYS happens in technical analysis. 

Now, bring your attention to the big yellow box smack in the middle of the chart. This is a box, a rectangle, a trading range. What makes this significant is this trading range went on for SIX FULL YEARS before breaking out of the range last month. In technical analysis, the longer the consolidation, the bigger the move (in whichever direction the break is).

Now, let's try to generate some possible price targets on this multi-year breakout. I lean on fibonacci analysis to generate potential future price targets because I have found that a lot of eyeballs follow fibonacci, and because a lot of eyeballs follow it, it tends to work more often than not. 

Fibonacci analysis is perfect for Tesla because at best, its inputs are the emotional highs and the emotional lows of a stock. How emotional was the $420/share funding secured tweet, which marked the top, and the shortly thereafter ~50% plunge that had many people talking about bankruptcy? UBER emotional!

Using those high and low points generates a few price targets worth keeping your eye on for Tesla. The 161.8% extension level gives us a $510 price target (+13% upside). The 261.8% extension level gives us a $710 price target (+57% upside). And the 423.6% extension level spits out a $1,028 price target (+127% upside).

When you combine the price (6 yr trading range breakout), with the fibonacci analysis ($1,028 price target), and the sentiment (one of the most hated, most shorted stocks in the market), you get a high probability, high conviction trade setup that can pay you handsomely. For risk management, your stop loss should be near the top of the trading range (~$390 - $400), because nothing is certain and you must always HAVE A PLAN!


Popular Posts