Tesla, Inc TSLA is trading higher on Friday in continued sideways consolidation that’s taking place just below the 200-day simple moving average (SMA) on the daily chart.
The 200-day SMA is a bellwether indicator used in technical analysis to determine if a stock is in a bull or bear cycle.
The EV giant's most recent consolidation is taking place within a double inside bar pattern. An inside bar is usually followed by a continuation move in the direction of the trend.
An inside bar pattern has more validity on larger time frames (four-hour chart or larger). The pattern has a minimum of two candlesticks and consists of a mother bar (the first candlestick in the pattern) followed by one or more subsequent candles. The subsequent candle(s) must be completely inside the range of the mother bar and each is called an "inside bar."
A double, or triple inside bar can be more powerful than a single inside bar. After the break of an inside bar pattern, traders want to watch for high volume for confirmation the pattern was recognized.
- Bullish traders will want to search for inside bar patterns on stocks that are in an uptrend. Some traders may take a position during the inside bar prior to the break while other aggressive traders will take a position after the break of the pattern.
- For bearish traders, finding an inside bar pattern on a stock that's in a downtrend will be key. Like bullish traders, bears have two options of where to take a position to play the break of the pattern. For bearish traders, the pattern is invalidated if the stock rises above the highest range of the mother candle.
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The Tesla Chart: Tesla’s inside bar pattern is neutral because although the stock surged 21% higher between June 26 and Aug. 4, Tesla is in a confirmed downtrend. Traders can watch for a break up or down from Wednesday’s mother bar on Monday to gauge future diection. In order to confirm the pattern is recognized, traders will want to see the break made on higher-than-average volume.
- Tesla confirmed a recent downtrend on Wednesday and Thursday, when the stock printed a lower high near the $895 level. If Tesla breaks down from the inside bar pattern on Monday, the downtrend will be intact. If the stock breaks up from the mother bar, the downtrend will be negated and a new uptrend could begin.
- The sideways trading has helped to cool Tesla’s relative strength index (RSI), which was measuring in abut 70% between July 29 and Aug. 4. Tesla’s RSI is now measuring in at about 60%, which gives the stock room to rise higher over the coming days without entering back into overbought territory.
- Bullish traders want to see Tesla regain the necessary power through continued consolidation to regain the 200-day SMA as support, which could indicate the stock will reenter into a bull market. Tesla briefly regained the area on Aug. 3 and Aug. 4, but the oversold conditions caused the stock to drop back below the 200-day.
- Tesla has resistance above at $900.40 and $945 and support below at $877.95 and $949.90.
Photo courtesy of Tesla.
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