Has The Tesla Reversal Started? - Tesla (NASDAQ:TSLA)

Shares of Tesla, Inc. TSLA are rebounding Friday. This comes after yesterday's dramatic selloff of almost 15%. Some analysts believe the ongoing feud between CEO Elon Musk and President Donald Trump drove the move.

It looks like the sell-off may be overdone. The shares could be about to move higher. This is why it is our Stock of the Day.

As you can see on the chart below, the shares found support around $290. This wasn't a coincidence. There was support at this price because it had previously been a resistance level.

Some of the people who sold their shares around $290 in March and April thought they made a good decision to do so when Tesla trended lower after.

But in early May, the shares broke this resistance and moved higher. When this happened many of the formerly happy sellers decided that selling was a mistake. Some of them decided to buy their shares back if they could eventually do so at the same price they were sold for.

So yesterday when the shares fell back to this price, these remorseful sellers entered the market as buyers. The large concentration of buy orders they placed converted what had been a resistance level into a support level.

Sometimes stocks rally after they reach a support level. Some traders are anticipating that it will be the case with Tesla.

This happens when buyers start to outbid each other. They know the sellers will go to whoever is willing to pay them the highest price.

They don't want to miss the trade, so they increase the prices they are willing to pay. Other anxious buyers see this and do the same thing. This could cause a snowball effect that pushes the stock higher as buyers cut in front of each other.

Many analysts and traders are saying that the move lower in Tesla was an overreaction. They may be right. The stock found support at a former resistance level, and a new uptrend may be starting.

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