A week ago, we took a look at the Consumer Discretionary Select Sector ETF (XLY) which was showing promising signs of a bounce.
Today, I want to focus on the single stock that represents around 22% of XLY’s total holdings – Tesla (TSLA).
Like many of the big-time tech stocks, Tesla has had a tough start to 2022.
In the chart below, you can see Tesla peaked back in early November 2021.
Since then, there’ve been plenty of big swings.
From its November high to its recent May low, Tesla lost 50% of its value.
However, in the past week, Tesla has also shown some promising signs that are contributing to XLY’s bounce.
So, today I want to discuss what’s coming next.
Take a look at the TSLA chart…
Tesla Inc (TSLA)
Source: eSignal
Tesla has made a series of lower highs… from its all-time high in November to those subsequent lower peaks in January and then April.
The fall from its most recent high in April saw Tesla lose 46% in less than two months… showing just how volatile Tesla can be.
The April selloff began when the Relative Strength Index (RSI) peaked and formed an inverse ‘V’ from inside overbought territory (above the upper grey dashed line).
As the RSI retraced back down to support (green line) and then eventually broke lower, Tesla’s stock price fell along with it.
The speed of that down move is demonstrated by the widening gap between our two moving averages (MA).
After crossing down over the 50-day MA (blue line), the 10-day MA (red line) accelerated further below it – until recently.
When the RSI entered oversold territory (below the lower grey dashed line), and then retraced back toward resistance, Tesla reversed and strongly rallied.
In just a few days, Tesla jumped by 25%.
That higher move has seen the RSI track back along the green line.
So, what am I expecting from here?
Well, earlier this year we received a clue.
Let’s take another look…
Tesla Inc (TSLA)
Source: eSignal
In the lower half of the chart, the red circle highlights a pattern from February through March.
The RSI formed a ‘V’ twice at (or near) oversold territory that caused Tesla to rally.
But when the RSI ran into resistance, that rally soon fizzled out and Tesla went back down.
Only when the RSI broke back above resistance in mid-March, did Tesla go on to make its April high.
That explosive move from March 15 to April 4 – a period of just over two weeks – represented a massive 50% gain for Tesla.
That shows just how quickly Tesla can move.
While it may not repeat a similar gain this time, it shows potential if the RSI breaks strongly above resistance again.
Now that Tesla is trying to form a short-term base (orange line) at around $730, this move could see it test the 50-day MA at around $900.
However, it all depends on Tesla holding this emerging support level and on the RSI.
If the RSI rebounds lower off resistance and Tesla fails to hold support, then this recent bounce could fizzle out and reverse just as quickly as it began.
Regards,
Larry Benedict
Editor, Trading With Larry Benedict
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Will you be buying into Tesla? Or do you think it’s still too volatile in these conditions?
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