Is Tesla Ready To Reverse — Or Will Elon Musk's Selling Continue To Pressure The Stock?

Tesla, Inc TSLA fell just over 5% toward a lower gap on Monday shortly after the markets opened but came short of filling it. Carter Braxton Worth advised traders on CNBC's “Options Action” to exit their Tesla positions and to buy the stock once it fills the gap and reaches $910.

Traders may not get that chance if Tesla continues to bounce in line with the general markets. There is risk of further downside, however, because Tesla’s Elon Musk has not finished selling the full 10% of his shares that he promised following a Nov. 7 survey the social media-loving CEO posted to Twitter.

Musk’s selling over recent weeks has added pressure to the downside on Tesla’s stock.

Retail traders on social media have been circulating theories Tesla may announce another stock split on Dec. 9, while other traders believe that may be the date Musk concludes selling blocks of the stock. If either theory comes to fruition, Tesla could see significant upside as the second half of the month approaches.

See Also: Elon Musk Calls For 'Hardcore AI Engineers' To Join Tesla And Make An Impact On People's Lives

The Tesla Chart: On Dec. 1, Tesla printed the first sign it may begin trading in a downtrend when the stock created a lower high of $1,172.84, which came in below the Nov. 22 high of $1,201.95. On Monday, Tesla printed a lower low of $950.50, which is below the most recent low of $1.062.70 printed on Nov. 23 and Nov. 24.

As of late morning on Wednesday, Tesla was attempting to hold above a support and resistance level at the $978.60 level. If the stock is able to close the trading day at or above the level, Tesla is likely to print a hammer candlestick on the daily chart, which could indicate the temporary bottom is in.

If Tesla rebounds over the coming days, traders will want to watch to see if Tesla prints another lower high or if it can shoot up and print a higher high to negate the downtrend.

Tesla’s relative strength index (RSI) is sitting at about 40%, which is nearing oversold territory and could soon become a buy signal for technical traders. The stock’s RSI hasn’t reached the 40% level since June 3, after which Tesla’s stock rebounded 22% higher over the four weeks that followed.

Tesla has two gaps on the chart with the lower gap falling between $910 and $944.20 range and the higher gap between $1.197 and $1,208 range. Gaps on charts fill about 90% of the time, so it is likely Tesla will trade into both ranges at some point in the future.

Tesla is trading below the eight-day and 21-day exponential moving averages (EMAs), and on Monday the eight-day EMA began to cross below the 21-day, both of which are bearish indicators.

The 50-day simple moving average (SMA) is currently in line with the support level at $978.60. If the stock can close the day above the SMA, it will indicate longer-term sentiment remains bullish.

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• Bulls want to see big bullish volume come in on Tuesday to confirm the hammer candlestick and drive Tesla’s stock up toward a resistance level at $1.045.02. Above the level, Tesla has further resistance near $1,075.
• Bears want to see big bearish volume come in and drop Tesla down into the gap and toward a support level at $900. Below the area, the stock has support at $877.95 and $821.