Tesla Breaks Down From This Pattern But Here's Why A Bounce Is On The Horizon

Tesla, Inc TSLA was trading slightly higher in the premarket on Tuesday after slipping almost 7% on Monday amid uncertainty regarding CEO Elon Musk’s plans for Twitter and how his acquisition may affect the EV giant.

Ongoing lockdowns and restrictions in China due to COVID-19 may also be adding downward pressure to Tesla shares. Demand for Tesla’s vehicles in the Asian country has waned and Tesla plans to slash prices again before the end of the year to boost orders, according to a report.

From a technical standpoint, Tesla’s 15% plunge between Nov. 15 and Monday was the most likely scenario because on Nov. 16, the stock broke down from a bear flag pattern on the daily chart, which Benzinga pointed out on Nov. 17.

The bear flag pattern is created with a steep drop lower forming the pole, which is then followed by a consolidation pattern that brings the stock higher between a channel with parallel lines or into a tightening triangle pattern.

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The Tesla Chart: The measured move of Tesla’s bear flag was about 20%, which indicated the stock could fall toward $163. On Monday, Tesla came close to completing the full drop, reaching $167.54.

• Tesla is trading in a confirmed downtrend, with the most recent lower high formed on Nov. 15 at $200.82 and the most recent confirmed lower low printed at the $177.12 mark on Nov. 9. Tesla is due to print at least another lower high over the next few days, and traders can watch for the stock to form a bearish reversal candlestick under $200 to confirm the trend is intact.
• A bounce is likely to come soon because Tesla’s relative strength index (RSI) is measuring in at about 28%. When a stock’s RSI reaches or falls under the 30% level, it becomes oversold, which can be a buy signal for technical traders.
• Bullish traders want to see volume decline over the next few days, which could indicate the stock is running out of sellers. Traders will then want to see Tesla print a higher low to indicate the downtrend may be over.
• Tesla has resistance above at $177.59 and $190.41 and support below at $166.71 and $152.19.

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Photo: Courtesy of tesla.com.