Stock Of The Day – Where Will The Tesla Selloff End?

Following Monday’s dramatic selloff of more than 15%, shares of Tesla, Inc. TSLA are staging a small rebound Tuesday. The stock has been getting pummeled along with the rest of the market. It is down more than 50% since December 17.

It found a bottom around the $222.00 level. This was not a coincidence and it’s also why Tesla is Stock of the Day.

In the stock market, there can be price levels that are more important than others. Large amounts of volume typically trade at these levels. Trends can pause or reverse when they reach them.

These are called support and resistance levels.

If a stock is heading lower, it's because there aren't enough buy orders to absorb all of the sell orders. Sellers are forced to undercut each other and this can cause a downtrend to form.

When a stock drops to a support level the selloff pauses or ends. There is more than enough demand to absorb all of the supply. Traders can sell all they wish to without pushing the price lower.

Read Also: Trump Makes False Claim About Tesla Boycotts, Musk Blames Soros And LinkedIn Co-Founder For Backing Protests

If a stock is heading higher, it's because there aren't enough sell orders to fill all of the buy orders. Traders are forced to outbid each other and this can cause an uptrend to form.

When a stock reaches a resistance level the rally pauses or ends. There is more than enough supply to fill all of the demand. Traders can buy all the shares they want to without pushing the price higher.

An interesting and often overlooked market dynamic is that price levels that were support can convert into resistance and price levels that were resistance can convert into support.

As you can see on the chart, the $222.00 level was resistance for Tesla in October. This is where the selloff ended.

Many who sold shares at $222.00 then regretted doing so when the resistance broke and the stock ripped higher. Some vowed to buy their shares back if they could get them for the same price they were sold at.

Yesterday when the stock dropped to this level, these remorseful sellers placed buy orders. This large concentration of buyers formed support and put a floor under the price.

Sometimes stocks rally after they reach support. Tesla may be about to move higher.

Read Next: Billionaire Investor Ron Baron Reacts To Nasdaq, S&P Selloff: ‘The Stock Prices…Can’t Believe How Cheap They Are’

Photo: Shutterstock