Tesla Readies For A Big Move In One Direction: The Bull, Bear Case For The Tech Giant

Zinger Key Points
  • Tesla is trading in a horizontal pattern on decreasing volume, which indicates consolidation.
  • The stock has both a gap above and a gap below that are likely to be filled in the future.
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Tesla, Inc TSLA was dropping about 2% on Tuesday, continuing to trade sideways ahead of another week of big-tech earnings, which will kick off with Advanced Micro Devices, Inc reporting today after the closing bell and finish with Apple, Inc and Amazon.com, Inc printing their results on Thursday

Tesla's horizontal trading pattern has been taking place on decreasing volume, which indicates consolidation and the moves lower are a sign of bulls taking profits rather than bears regaining control. 

Within the consolidation, Tesla is also trading in a triple inside bar pattern. 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. 

If Tesla confirms a new downtrend and drags the market lower, volatility in the stock market could increase. Traders wishing to trade the volatility in the stock market can use MIAX's SPIKES Volatility products. The products, which are traded on SPIKES Volatility Index SPIKE, track expected volatility in the SPDR S&P 500 over the next 30 days.

Want direct analysis? Find me in the BZ Pro lounge! Click here for a free trial. 

The Tesla Chart: Over the last three trading days, all of Tesla's price action has been taking place within the July 27 trading range, which has settled the stock into a triple inside bar pattern. The pattern is neutral in this case and traders can watch for the stock to eventually break up or down from the mother bar on higher-than-average volume to gauge future direction. 

  • The consolidation has helped to drop Tesla's relative strength index (RSI) from about 74% to the 50% mark. The falling RSI indicates the stock has room to move both to the upside and the downside without becoming overbought or oversold. 
  • Tesla has a gap below and above the current share price, both of which are likely to be filled at some point in the future. The higher gap exists between $280.93 and $289.52 and the lower gap falls between $235.23 and $240.85. 
  • If Tesla breaks up from the horizontal pattern, the stock may find resistance at the upper range of the higher gap and if the stock breaks down from the pattern, Tesla may find support at the lower range of the gap below. 
  • Tesla has resistance above at $265.10 and at $271.71 and support below at $254.98 and at $240.85. 

Read More: Nasdaq 100 Records 5-Month Winning Streak: Historical Patterns Predict The Next Moves

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