Tesla Stock Drives Into This Bullish Pattern: What's Next?

On Monday Tesla Inc TSLA fell lower and back tested the break out from a triangle pattern Benzinga called out. Bulls came in and bought the dip when the stock nicked the descending trendline and the stock wicked from the area and rallied higher.

Tesla’s stock has shown strength this week while the general markets have wobbled in the lead up to the monthly options expiry on Friday and the Federal Reserve meeting next week. On Thursday morning a number of options traders purchased bearish put contracts of Tesla. At 9:43 a.m., a particularly large order of puts was purchased. The trader paid $788,919 for 1581 contracts at $4.99 per piece and chose a strike of $690 and a Sept. 24 expiry.

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The Tesla Chart: On Thursday Tesla’s stock attempted to break up from a bull flag pattern on the daily chart but rejected the upper descending trendline of the flag pattern. The stock may need further consolidation within the pattern to garner strength for a bullish break.

The pole of the bull flag was created between Aug. 18 and Sept. 8 and the flag between Sept. 8 and Thursday. When Tesla’s stock reached the top of the pole, its relative strength index (RSI) measured in at 67%, which indicated consolidation was needed. When a stock’s RSI reaches near or above the 70% level, it's in overbought territory, which is a sell signal for technical traders.

Tesla is trading above the eight-day and 21-day exponential moving averages (EMAs) with the eight-day EMA trending above the 21-day, both of which are bullish indicators. The stock is also trading well above the 200-day simple moving average, which indicates overall sentiment in Tesla is bullish.

• Bulls want to see big bullish volume come in after further consolidation to break Tesla’s stock up from the bull flag pattern and through a resistance level at $780. If the stock can regain the level as support, it has room to move up toward a psychological resistance level at $800.
• Bears want to see big bearish volume come in and drop Tesla down below the eight-day EMA. If the stock loses the level as support, it could retest the bottom descending trendline of the flag formation and below that there is support at $720.