Tesla Consolidates In Double Inside Bar Pattern: Here's How To Play The Post-Earnings Drop

Tesla, Inc TSLA was trading slightly lower on Monday, continuing to consolidate Thursday’s 9.75% drop that followed the EV giant’s earnings print, where Tesla reported lower-than-expected margins.

The decreasing margins came after Tesla slashed the prices of various models to boost demand. Following the news, many analysts lowered their price target on Tesla, which Future Fund co-founder Gary Black believes is the result of the firm’s long-term outlook. Read more here...

From a technical analysis perspective, Tesla’s consolidation on Friday and into Monday had the stock trading in a double inside bar pattern.

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 charts 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.

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The Tesla Chart: Tesla’s inside bar pattern leans bearish, because the stock was trading lower before forming the pattern but the lower wicks on Friday and Monday’s candlesticks may indicate the local bottom has been found. Traders and investors can watch for Tesla to break up or down from Thursday’s mother bar on higher-than-average volume to indicate a future direction for at least the short term.

• If Tesla breaks up from the mother bar, the stock will enter the gap that was left behind on Thursday, which is a likely scenario because gaps on stocks fill about 90% of the time. If that happens, Tesla may find resistance at the top of the gap, which is measuring in at the $177.65 mark.
• If Tesla breaks down from the mother bar, a downtrend will confirm, which could put the stock in danger of testing the psychologically important $150 level as support. If that happens, the eight-day exponential moving average could continue to guide the stock lower for a longer period of time. A break down from Thursday's range could also confirm a bear flag pattern.
• Tesla has resistance above at $166.71 and $177.59 and support below at $152.19 and $139.53.

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