Tesla Consolidates Friday's Charge North In Tandem With S&P 500: Here's What Could Happen Next

Zinger Key Points
  • Tesla was trading in an inside bar Monday, consolidating Friday's surge higher.
  • The pattern leans slightly bullish and a break up from the mother bar would negate a possible bear flag.
Tesla Consolidates Friday's Charge North In Tandem With S&P 500: Here's What Could Happen Next

Tesla, Inc TSLA opened slightly lower Monday and fell about 3% intraday after a big bullish day on Friday saw the stock climb 5.36% off the open.

The price action caused Tesla to form an inside bar pattern on the daily chart. Similarly, the S&P 500 was working to print an inside bar pattern just under the $400 level, which Benzinga pointed out may happen on Sunday.

An inside bar pattern indicates a period of consolidation and is usually followed by a continuation move in the direction of the current 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 reached a new 52-week low of $177.12 on Nov. 9 and subsequently, the stock has rebounded about 8%. The steep increase has caused consolidation in the form of an inside bar pattern to form on lower-than-average volume.

  • Both bullish and bearish traders can watch for the stock to break up or down from Friday’s mother bar later on Monday or on Tuesday to gauge future direction. In Tesla’s case, the pattern leans slightly bullish because the stock was trading higher before printing the formation.
  • If Tesla breaks down bearishly from the mother bar, bullish traders will want to see the stock form a bullish reversal candlestick above the 52-week low, which could indicate a higher low of an uptrend has occurred. If the stock breaks up bullishly from the pattern, bullish traders will want to see Tesla regain the eight-day exponential moving average, which could negate a potential bear flag.
  • If the bear flag pattern is recognized, which was created starting on Nov. 1, the measured move is about 24%, which suggests Tesla could fall toward $150. If that happens, Friday’s high-of-day will serve as the most recent lower high within a downtrend pattern.
  • Tesla has resistance above at $200.51 and $213.13 and support below at $190.41 and $175.40.

See Also: What's Going On With Tesla Stock Today

Photo: Courtesy of Tesla Owners Club Belgium on flickr

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