Tesla, Inc TSLA was trading almost 6% lower on Monday morning after reporting first-quarter production numbers which came in just slightly above the previous quarter.
The downturn caused Tesla to open the trading session with an inside bar pattern on the daily chart. An inside bar pattern indicates a period of consolidation and is usually followed by a continuation move in the direction of the current trend.
An inside bar pattern has more validity on larger time frames (four-hour chart or larger). The pattern has a minimum of two candlesticks and consists of a mother bar (the first candlestick in the pattern) followed by one or more subsequent candles. The subsequent candle(s) must be completely inside the range of the mother bar, and each is called an "inside bar."
A double, or triple inside bar can be more powerful than a single inside bar. After the break of an inside bar pattern, traders want to watch for high volume for confirmation the pattern was recognized.
Bullish traders will want to search for inside bar patterns on stocks that are in an uptrend. Some traders may take a position during the inside bar prior to the break, while other aggressive traders will take a position after the break of the pattern.
For bearish traders, finding an inside bar pattern on a stock that's in a downtrend will be key. Like bullish traders, bears have two options of where to take a position to play the break of the pattern. For bearish traders, the pattern is invalidated if the stock rises above the highest range of the mother candle.
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The Tesla Chart: On Friday, Tesla printed a big bullish kicker candlestick following a seven-day consolidation pattern, which saw the stock trading in a tight range between about $190 and $200. Although Tesla was reacting bearishly to production numbers, the inside bar pattern leans bullish for continuation higher because the stock was trading upwards before printing the pattern.
- Traders and investors can watch for Tesla to break up or down from Friday’s mother bar later on Monday or on Tuesday to gauge future direction. When the stock breaks from Friday’s range, traders can watch for higher-than-average volume to indicate the pattern was recognized.
- Tesla is trading in a confirmed uptrend, with the most recent higher low formed on March 28 at $185.43 and the most recent confirmed higher high printed at the $200.66 mark on March 22. If Tesla falls under Friday’s low-of-day, bullish traders will want to see the stock reverse course above the March 28 low-of-day to indicate the uptrend will remain intact.
- Bearish traders want to see big bearish volume come in and break Tesla down under the 50-day simple moving average (SMA), which could power a further move to the downside. On the upside, Tesla is likely to find resistance, at least temporarily, at the 200-day SMA.
- Tesla has resistance above at $213.13 and $225.03 and support below at $200.51 and $190.41.
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