Why Tesla's Bloodbath Could Ease In The Short-Term: What To Watch On This Chart

Tesla, Inc TSLA was popping up about 0.3% when the market opened on Wednesday, in tandem with the S&P 500, which was rebounding 0.65%.

The EV-giant has been heavily beaten down this year plunging 64% from its Jan. 3 opening price of $382.58. On Tuesday, the stock lost support at the $140 mark and filled a lower gap that was left behind on Nov. 17, 2020 between $137.48 and $144.33.

Filling that gap was a likely scenario because gaps on charts fill about 90% of the time. The lowest level of the gap is also likely to act as support, which may cause Tesla to bounce up from the level.

See Also: Tesla To Freeze Hiring, Cut Jobs In Q1

Tesla is also likely to bounce because the stock’s relative strength index (RSI) is measuring in at about 24%, which puts the stock in oversold territory.

RSI is an indicator technical traders use to measure bullish and bearish price momentum. RSI levels can range between 0 and 100, with levels between 30 and 70 generally considered to be healthy.

When a stock’s RSI falls below the 30% level, it's considered to be oversold. When a stock enters oversold territory, it indicates the securities price no longer reflects the asset's true value, which can signal a reversal to the upside is in the cards.

When a stock’s RSI rises above the 70% area, it is considered to be overbought. When a stock enters overbought territory, it signals the securities price is elevated to its intrinsic value, which can signal a reversal to the downside is on the horizon.

RSI is best used when combined with other signals and patterns on a stock chart because stocks can remain in oversold and overbought territory for an extended period of time before reversing.

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The Tesla Chart: On Tuesday, Tesla closed the trading session near its low-of-day price on higher-than-average volume, which suggested the stock could trade lower on Wednesday. But, because Tesla has traded lower for the last seven trading days in a row, a bounce or sideways trading has become the most likely scenario.

• On Wednesday, Tesla opened with an inside bar pattern on the daily chart, which indicates a period of consolidation may take place. If the stock remains trading within Tuesday’s range on Wednesday, traders will want to see the inside bar print on decreasing volume.
• Bullish traders want to see either sideways consolidation or for Tesla to break up from Tuesday’s mother bar later on Wednesday, which could indicate the stock will enjoy at least a short-term run to the upside. Bearish traders want to see Tesla break down from Tuesday’s range, which would indicate the bears are still in control.
• Tesla has resistance above at $139.53 and $152.19 and support below at $134.70 and $123.80.

Read Next: Tesla To Freeze Hiring, Cut More Jobs In Q1 Amid Challenges: Report