Will Elon Musk Reneging On Twitter Deal Boost Tesla Stock? Here's The Pattern To Watch

Tesla Inc TSLA plunged almost 7% lower at one point on Monday but bounced up sightly off a support level to trade about 6% lower as of press time.

The stock may be reacting to new information regarding Elon Musk’s takeover bid of Twitter, Inc TWTR, which on Friday looked to be officially on the rocks after Musk filed to terminate the merger agreement.

After the takeover bid was formally announced on April 25, Tesla plunged more than 37% between that date and May 24 as a negative reaction to the news. Despite some investors hoping the termination of Musk’s Twitter deal could boost Tesla, the opposite appears to be holding true, at least for the near-term.

Tesla’s decline on Monday could also be attributed to Wells Fargo weighing in on the stock. One of the firm’s analysts, Colin Langan, maintained an Equal-Weight rating on Monday but lowered the price target from $900 to $820.

Not all analysts are bearish on the termination of Musk’s Twitter deal, however. Future Fund founder Gary Black sees 5% to 10% upside for Tesla, although he believes it may take some time before that happens. Black believes institutions that exited Tesla after Musk’s buyout was announced may begin repurchasing shares after the EV giant reports second-quarter earnings on July 25.

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The Tesla Chart: Tesla negated its downtrend on Friday, when the stock shot up above the most recent high of $756.21, which was printed on June 27. Although the lower prices on Monday may concern investors, a higher low is needed if Tesla is about to reverse course into an uptrend and Monday’s low of day could serve as confirmation of a trend change if the stock trades higher over the coming days.

• Friday’s higher prices caused Tesla’s eight-day exponential moving average (EMA) to cross above the 21-day EMA, which is a good sign for the bulls. Traders wanting to see higher prices will prefer to see Tesla close the trading session above both EMAs, to avoid a bearish cross over the next few days.
• Tesla’s lower prices on Monday were taking place on average volume, which indicates there is not presently a great deal of fear selling taking place. At press time, about 26.5 million Tesla shares had exchanged hands compared to the 10-day average of 28.85 million.
• If Tesla closes the trading session near its low-of-day price, the stock will print a bearish Marubozu candlestick, which could indicate lower prices will come again on Tuesday. If that happens, bullish investors will want to see the stock print a reversal candlestick above the most recent higher low of $650, otherwise, the downtrend may resume.
• Tesla has resistance above at $720.95 and $745.63 and support below at $700 and $671.64.