Technical analysis of TSLA
The correction by TSLA, the representative CFD based on Tesla, Inc’s shares, appears to have paused since last week as price has recovered somewhat to around $700. The latest investigation by the American traffic safety board after a crash in Detroit and Volkswagen’s new plans to challenge Tesla seriously over the next decade have dented sentiment somewhat, but the key factors driving price this month so far are this week’s meeting of the FOMC and many participants’ reluctance to buy more strongly overvalued shares. This technical analysis of TSLA looks at the daily chart.
Tesla’s actual ratio of price to earnings (‘PE’) for 2020 was over 1,100, making it still among the most overvalued major shares in history by this measure. However, PE is expected to drop to ‘only’ 265 by the end of this year. Earnings per share for the fourth quarter of 2020 were fairly disappointing at 24c, only a bit more than a third of the consensus.
Back on the chart, the clear high resistance is the latest high around $890. This area just below the psychological zone of $900 was tested over several weeks in January in the runup to the latest earnings report. Low support is less obvious: it might occur around $410, the starting point for the large gains from November last year, but it’s a challenge to picture such a deep drop anytime soon, so moving averages and Fibonacci are likely to be in focus over the next few weeks.
Technical indicators on TSLA D1
Moving averages continue to give a buy signal with the 50 SMA from Bands above the 100. Price has regained the value area between these two but shows no immediate sign of testing the 50 SMA, so both the 50 and 100 SMAs are likely to be in view as near-term resistance and support respectively over the next few days.
There is currently no signal of saturation from either Bollinger Bands (50, 0, 2) or the slow stochastic (15, 5, 5). The latter at about 66 is very slightly closer to overbought than neutral. Unusually for a CFD on an individual share, selling volume has generally dominated over buying so far in 2021 with the notable exception of the upsurge in the latter on 4 and 5 March.
Price action and Fibonacci
Recent price action has been somewhat confused, more so than usual for an individual share, and might suggest a battleground between buyers and sellers in the value area. The relatively long wicks of various periods over the last fortnight might traditionally be interpreted as indicating higher volatility.
The main area of attention from Fibonacci at the moment is the 38.2% daily retracement which price is currently testing. Typically, the 50% is the most significant Fibonacci retracement area, but any area of support or resistance is at least somewhat less reliable for an individual share than it is for a major forex pair for example. A clear target for bulls from here is the 61.8% daily Fibonacci fan which is currently just above $800.
Technical analysis of TSLA: summary
A core principle of technical analysis is that a trend remains active until there is evidence that it has ended. For the moment, there is no evidence of this for TSLA, so the bias for most traders over the medium to long term is likely to remain towards buying.
However, the meeting of the Federal Open Market committee in the evening of Wednesday 17 March GMT is likely to generate at least moderate volatility for most major shares and other instruments. It remains unclear whether the recent rise in bond yields in the USA and other countries indicates rising inflation or the early stages of economic recovery. Even if the latter, record corporate debt and the fragility of recovery so far will probably give the Fed pause for thought before any steps towards tightening might be taken.
In general, the technical picture for TSLA remains somewhat positive, with a retest of the latest high a favourable scenario over the next few weeks. Conversely, fundamentals and sentiment cannot be ignored, especially now that so many shares are so clearly overvalued by traditional measures.
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