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Christian Tharp

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Five Star Stock Watch: Tesla Motors

Tesla was obviously a high flyer last year. After breaking through $40 back in April, the stock more than quadrupled to almost $195 a share.

Then came the correction.

As the stock fell to a low of $120, the question kept coming up: When will the sell-off end?

Judging from the stock's recent movement illustrated below, it appears that a new rally is underway. 

The company: Tesla Motors, Inc.

Ticker Symbol: (NASDAQ: TSLA)

Sector: Consumer Goods   

Industry: Automakers Manufacturers

Tesla Motors, Inc. designs, develops, manufactures, and sells electric vehicles and electric vehicle powertrain components. The company also provides services for the development of electric powertrain systems and components, and sells electric powertrain components to other automotive manufacturers. 

Related: Five Star Stock Watch: Wendy's

As of October 3, 2013, the company operated a network of 42 stores and galleries in the United States and Canada. Tesla Motors, Inc. was founded in 2003 and is headquartered in Palo Alto, California.

Please take a look at the 1-year chart of Tesla below with added notations:

As Tesla rallied and then sold off last summer and fall, the stock created a key level at $160. In addition, a simple trendline of resistance was formed from the stock's peak. Both of those levels are highlighted on the chart above.

On Tuesday Tesla shot up through the trendline of resistance, but stopped right at the aforementioned $160 level. Yesterday the stock broke up through that resistance as well. To add to those positive developments, there was a huge increase in volume on both breaks of resistance.

Related: Five Star Stock Watch: JC Penney

Tesla's downtrend is still in force. The first sign of life would be if the stock can break back into its channel, which would currently require a move above $140. The next step would be to then break through the previous channel resistance, which is approaching $165.

Tesla isn't set to release earnings again until mid-February, 2014.

No matter what your strategy, or when you decide to enter, always remember to use protective stops and you’ll be around for the next trade. Capital preservation is always key!

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