Tesla (TSLA) shares staged a dramatic recovery ahead of the company’s upcoming earnings report scheduled for July 23. Despite a slip in its deliveries compared to a year ago, the number of deliveries beat Wall Street’s expectations. This “bad news” was “good news” on the market sentiment front, and the price action proves it (at least for now).

Tesla’s Solid Market Position

Tesla is still the world’s largest EV manufacturer and seller, though some analysts would argue that the company’s grip on the market might be loosening. Plus, the interest rate environment isn’t the most favorable for those looking to buy a new EV.

However, Tesla has delivered more cars than it has produced. Dramatic inventory reduction has positioned the EV maker in a high-demand/low-supply situation. Additionally, investors and car buyers expect interest rates to fall sometime toward the end of the year, which could boost demand for EVs and further fuel Tesla’s rebound.

What Does Tesla’s Price Action Tell Us?

Last April, following its surprise earnings report, Tesla pulled off a huge breakaway gap. At the time, the Money Flow Index (MFI) and Chaikin Money Flow (CMF) showed signs of improving, but there were potential headwinds that could slow down or disrupt TSLA’s upward trajectory.

The outcome: Tesla’s stock slowed, and prices consolidated, forming a base as investors digested news about the company’s inventory situation and other factors.

What you see in the chart below is what happened next. 

CHART 1. DAILY CHART OF TESLA. Since April 23, TSLA stock moved sideways and broke out to the upside.Chart source: StockCharts.com. For educational purposes.

First, look at the congestion zone, which formed a rectangle pattern highlighted in red. This occurred at the anticipated resistance level (blue dotted line). Also, notice how the CMF levels dropped as buying pressure gave way to selling. However, during that lengthy period of consolidation, the CMF and MFI began rising against TSLA’s sideways price action, signaling a potential breakout toward the upside.

TSLA’s price blasted through the second resistance level, as bullish market sentiment catapulted the stock 32% above its breakout level (the top of the rectangle formation).

Is TSLA Stock a Buy?

With explosive moves such as this one, it’s important to remember that, until the fundamentals validate the price, it’s all FOMO, but in the near term.

Tesla closed (with gaps) above the upper Bollinger Band three times. Even if this signals the beginning of an uptrend, prices tend to revert to the middle band before continuing in a given direction, as the bands, according to Bollinger himself, contain 88% to 89% of all price action.

So, if or when TSLA’s stock price pulls back, here are the key levels to watch:

  • Former resistance near $205 could act as the first level of support.
  • The top range of the rectangle formation between $188 and $189.
  • The middle Bollinger Band, which can also be viewed as potential support, may likely coincide with one of these levels once Tesla’s price takes a breather.
  • The Volume-by-Price indicator, highlighting the range of elevated interest and trading activity, also aligns with the mentioned support levels.

Final Thoughts

Tesla’s sentiment-driven surge might indicate a significant shift in its technical and fundamental situation. However, it’s prudent to wait for confirmation. Technically, this confirmation will be evident in the subsequent price action. Fundamentally, it will be reflected in the reported sales and earnings over the next few quarters, which could take longer to materialize. Additionally, technical and fundamental outcomes are subject to changes in the interest-rate environment.



Disclaimer: This blog is for educational purposes only and should not be construed as financial advice. The ideas and strategies should never be used without first assessing your own personal and financial situation, or without consulting a financial professional.

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