Is There Opportunity in Tesla?

February 23, 2024No Comments

 

Today I’m going to talk about just one stock – one trading idea – that I believe has short-term opportunity. I don’t usually do this, but I thought it’d be a nice change. I’m going to talk about Tesla. And I’m not a long-term fan of the trend as you’ll see in [00:02:30] a moment, but I do think there is an opportunity. So, without further ado, I’m going to bring you right to the chart. 

Opportunity in Tesla

Opportunity in Tesla – 2-Year Chart

It starts towards the end of 2021 here at the left-hand side, and current pricing is on the right. You can see it’s been in a downtrend with lots of volatility, with the near-term downtrend a little less volatile. [00:03:00] What I want to point out here is, stocks – even when they’re in a downtrend – are making lower highs and lower lows. And, when they do that, it means that they are also making occasional highs. So, what I’m seeing here on Opportunity in Tesla, just from a pure price formation standpoint is a consolidation and a small breakout. I think there’s a good chance of it going back up to that trendline. Now, the trendline is ever-descending, so keep that in mind. If [00:03:30] it angles like this to get back, it might only arrive at $220 to $230, but I’m suggesting maybe if it moved quickly, there could be a $240 target.  Either way, you’d have to watch the trendline and the angle of ascent.  But you see the gap. [00:03:44] Gaps must be filled, because a gap represents either irrational excitement – or, in this case – irrational pessimism. And, usually the market is wrong when it moves that quickly. [00:04:00] 

 

Money Flow Index and RSI

So, let’s take a look at why I like the potential for us to see that trendline, not just from a general pattern perspective, but from a momentum and force index perspective as well. Many of you know that I like the ‘Money Flow Index’. It’s a momentum oscillator of money flow, or ‘how much money is moving in to or out of a stock’, [00:04:30] and it measures the momentum of that. You can see that in the past when the MFI went through its overbought line, it was quite accurate. You can see a green level here [00:04:44], a green level there, and that was signaling two major overbought levels even on the signals that were minor. 

Several cases of overbought levels resulted in short-term rallies, and a pretty good green signal here [00:05:07] where it went over the line for oversold and we got a substantial rally. This one was pretty good right here [00:05:15] at the bottom, and we’re seeing a rally there. What we’re seeing right now is one of these very strong oversold signals from money flow, and you can see it’s picking up, it’s hooking up, [00:05:30] and that is what we look for. You could argue that it’s probably picked up more than the stock itself has, so there might be further room for that to go. But we don’t want to just look at money flow – we want to look at money flow and price momentum together.  That’s what the Force Index does.  And again, when you see a hook-up from a very oversold position, that can be very positive. You’ll see that across the chart every time this has happened. You can see this one [00:05:55] was a really good one, in early-’23. 

Okay, last but not least – is RSI. This is classic [00:06:00] price momentum, so we’re no longer including money flow in our formula. When price momentum gets very oversold on the RSI level, you usually get a nice hookup. The big one (in early-’23) has a strong oversold signal on RSI and strong movement on the price. [00:06:20] So, that’s what we’re getting right now. A very, very similar signal. Based on all three of these momentum indicators, plus the fact the formation is a [00:06:30] basing formation on the daily chart, it will probably fill the gap, and may even go a little bit higher. 

Opportunity in Tesla

Although I don’t think Tesla is a good buy-and-hold stock as it’s trending down, I do think it’s worth considering for short-term traders. I think there’s an opportunity for those willing to take a risk within a declining trend stock. This is not your grandmother’s stock, you could say, but there’s an opportunity for traders who [00:07:00] want to see if they can squeeze a little bit out of this stock before it hits that trendline and falls. We’ll see you next week.

By the way, I will be appearing on BNN this coming Monday, February 26 at noon, est.  I hope you tune in.

Call toll-free at 1-855-326-6266 or email your queries in advance to [email protected] (please specify they are for Keith Richards) and I will be happy to answer them.

 

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