PreMarket Prep Stock Of The Day: Tesla And The Consolidation Station

Benzinga's PreMarket Prep airs every morning from 8-9 a.m. ET. During that fast-paced, highly informative hour, traders and investors tune in to get the major news of the day, the catalysts behind those moves and the corresponding price action for the upcoming session.

On any given day, the show will cover at least 20 stocks determined by co-hosts Joel Elconin and Dennis Dick along with producer Spencer Israel.

Stocks don't always go straight up or straight down. Whether one is in an uptrend or downtrend, there are periods of consolidation before a catalyst moves the issue out of the consolidation zone.

This exact scenario applies to Tesla Inc. TSLA, which is the Premarket Prep Stock Of The Day.

Major Rally In 2020: After ending 2019 at $83.67, Tesla more than doubled in February before retreating to end the month at $133.60. It crumbled with the broad market in March falling to $70.10 and began to rebound.
That marked the lowest level since last December when it bottomed at $65.45.

Fueled by better-than-expected car production and earnings, along with a 5-for-1 stock split in August and a raging bull market, the issue catapulted to $502.49 in early September. From peak to trough, that represents a gain of 617%.

The September Tech Wreck: Tesla wasn't spared in the tech wreck that took place in early September. In only four trading sessions after crossing the $500 threshold, the issue swooned to $329.88 on Sept. 8 and ended the session just off that low at $330.21. That represented a 34% retreat in the issue from its all-time high.

That low came in between its Aug. 14 low ($325.33) and its Aug.17 low ($334.57).

Snap-Back Rally: Just as quickly as it went down, it rebounded back in a hurry. In the next five sessions after putting in the low, it rallied to $461.94 on Sept. 15 and retreated to end that session at $449.76. Until today, it had surpassed that high on only one occasion, that being on Oct. 14 when it spiked to $465.90 after it was hyped up by long-term shareholder Ron Baron during a CNBC interview.

Consolidation Station: A term coined by the host of the PreMarket Prep Show is “consolidation station.” In other words, this is a time period that can be lengthy when an issue trades in a well-defined area. In the case of Tesla, it has been in a trading range from $379.11 to $465.90 since Sept. 24, with a vast majority of the price action taking place between $400-$440.

The Catalyst The Whole Street Knew About: It has been rumored for quite some time that Tesla was going to be added to the S&P 500 index after recording a string of four consecutive profitable quarters. After the close on Monday, the much-anticipated move was finally announced.

What Now? Interestingly, the after-hours spike took the issue to the exact top of the trading range, which was $465.90, when it topped out only a dime from that level at $466. It was able to maintain a majority of those gains until the real liquidity came in at 9:30 a.m. EST.

Following a much higher open, it rallied to $462 and reversed course. The issue has continued to make lows for the season, with the current one standing at $433.01. At this time, it is rebounded into the $447 handle.