TSLA's bull-flag breakout meets the VWAP anchored to its ATH

Updated

Primary Chart: Daily chart of with anchored-VWAP from Nov. 2021 all-time high

Different stocks tend to have unique price characteristics. Some move timidly, others move boldly. Some are volatile, some are tame. Some some make predictable moves in incremental steps, and others whipsaw around before crashing higher or lower.

is anything but timid. It's price action tends to be the bold and volatile. And it has no problem faking out directionally bullish or bearish traders—and it may often even take a few non-directional premium sellers down with it as well. Just look at the chart from its pandemic 2020 lows, Supplementary Chart A. Rallies are spectacular, eye-popping, and unbelievable. Declines are precipitous and devastating. Dabbling in TSLA stock, with or without leverage, or its options is not for the faint hearted, requiring traders to be both nimble and expert risk managers.

Supplementary Chart A

Just a few days ago on May 30, 2023, TSLA broke out of an apparent bull-flag pattern. A bull-flag pattern is a consolidative pattern that interrupts a rally. Conversely, a bear-flag pattern—not the case here—is also a consolidative pattern that interrupts a decline. Bull flags take the shape of a narrow range where trading peaks and valleys form a parallel channel with the downtrend line at the upper bound and the return line at the lower bound.

When confirmed, flags tend to be a continuation pattern and involve a breakout in the direction of the (short-term or long-term) trend that led to the flag. The length of the trend leading to the flag gives a hint at its significance.

This flag breakout gave traders little time to catch it. Even the retest didn't even fall all the way back to touch the bull-flag channel, making only a perfunctory attempt, a feint perhaps, at touching the flag channels upper trendline. See Supplementary Chart B.1 below. The breakout made some technical sense given that TSLA's price had found support or recovered its VWAPs anchored to recent swing highs and lows from January 2023 and March 2023 as shown in Supplementary Chart B.2.

Supplementary Chart B.1

Supplementary Chart B.2

But now, TSLA has run straight into its anchored VWAP from its all-time high in November 2021. See Supplementary Chart C.1. This is a critical level to watch. The Primary Chart also shows this VWAP going back to the all-time high, and it reveals how this anchored VWAP has been resistance. Because is prone to false breaks and whipsaws—see the April 2022 highs and the August 2022 highs as examples—it is not surprising that TSLA has tended to break above this critical VWAP several times toward the end of its bear rallies only to fail after trapping a bunch of bulls. At the August 2022 highs for TSLA, it broke above and below this VWAP repeatedly, trapping bears and bulls several times.

So it may be reasonable to expect trappy price moves around this multi-year VWAP again this time before a reliable direction becomes more apparent. This will be important to monitor. Many traders and investors have developed a narrative that has convinced them one way or the other. And at the end of the day, many may lose, although this author wishes only the best of luck to every reader who trades TSLA (shorts and longs). Even the ones who are correct as to the ultimate direction months from now may get stopped as price traps around this level.

Supplementary Chart C.1

If TSLA can break and hold above its ATH anchored VWAP, then perhaps it can reach its 50% retracement at $258, shown in green on Supplementary Chart D below. Note that Supplementary Chart D contains the Fibonacci levels covering TSLA's entire bear decline from its November 2021 all-time high. This coincides with a gap that may draw price to $262, which is just above that retracement level. And a key resistance area from September 2022 lows lies at $265. Decisive closes above this VWAP may bode well for short-term traders to target this $258-$265 zone.

Supplementary Chart D

For those who find themselves very attached to a security or crypto (including TSLA)—meaning essentially unable to part with it to the point of ignoring risk management—please consider that the yield curves remain deeply inverted.

Another Inverted Yield Curve with Even More Predictive Power

Since this yield-curve post was published back in late November 2022, the 10y/3m yield curve has inverted even more deeply into negative territory. TradingView's yield charts don't go back far enough, but for all the data shown by TV, the inversion is a record. Liz Ann Sonders of Schwab posted a chart in January 2023 showing that it was the deepest inversion since 1981, which in January meant that this segment of the curve had reached a 42 year record inversion!

Other widely followed yield-curve inversions have fallen into record inversion territory as well. But this may not preclude TSLA from rallying hard similar to the way AAPL and NVDA have done. On the other hand, TSLA may be late to the party if the party decides to end soon. No one knows, but traders can watch how price interacts with key levels, which provides more information than the best macro analyst on the planet.

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Author's Comment: Thank you for reviewing this post and considering its charts and analysis. The author welcomes comments, discussion and debate (respectfully presented) in the comment section. Shared charts are especially helpful to support any opposing or alternative view. This article is intended to present an unbiased, technical view of the security or tradable risk asset discussed.

Please note further that this technical-analysis viewpoint is short-term in nature. This is not a trade recommendation but a technical-analysis overview and commentary with levels to watch for the near term. This technical-analysis viewpoint could change at a moment's notice should price move beyond a level of invalidation. Further, proper risk-management techniques are vital to trading success. And countertrend or mean-reversion trading, e.g., trading a rally in a bear market, is lower probability and is tricky and challenging even for the most experienced traders.

DISCLAIMER: This post contains commentary published solely for educational and informational purposes. This post's content (and any content available through links in this post) and its views do not constitute financial advice or an investment or trading recommendation, and they do not account for readers' personal financial circumstances, or their investing or trading objectives, time frame, and risk tolerance. Readers should perform their own due diligence, and consult a qualified financial adviser or other investment / financial professional before entering any trade, investment or other transaction.

Note

TSLA closed above its ATH anchored VWAP discussed in this post before the market open today.

Note that this level is important. The close above may mean this stock can run to $250. But also look at the trapping price action around this level over the past 1.5 years since the ATH was made in Nov. 2021. In some cases, both bulls and bears relying on this key dynamic level have been trapped before the ultimate move occurred.

Further, this level has proven to be resistance repeatedly despite sharp rallies above it that trapped bulls. Check out the arrows on the chart above showing clean breaks with closes above and below that ultimately led to a trap.

Let's see what happens next.

Note

In this update, let's consider what happened today. Yesterday, price closed at $234.86. And in yesterday's update (6/8/23), Squish hypothesized that TSLA's price could run to $250 based solely on a close above the anchored VWAP from the Nov. 2021 ATH. Today, that happened with an intraday high of $252.42.
But price closed well off the highs, though a sizeable gap still remains b/w yesterday's close and today's low.

Of course, because TSLA is a volatile and bold mover, this anticipated rise to $250 happened in a single trading session rather than over a couple weeks like many other less volatile equities. This shouldn't be surprising, but somehow, it always carries some level of startling emotion when it jumps 4% at the open, right?

Everything in the original post remains valid in terms of levels and possibilities. The above post pointed out how prior interactions b/w TSLA's price and this key VWAP have been very trappy and have whipsawed quite a bit. More of the same could occur. See the prior 6/8/23 update for examples (and if bored, one can find even a couple more examples of whipsaws around this VWAP beyond what is identified with arrows).

Some of the past whipsaw moves above this VWAP have involved gaps higher in that process (see 6/8 update), so unfortunately, the gap isn't conclusive yet. There are bearish arguments for the way this candle presents, but there two closes above the VWAP definitely makes bears more cautious as we can't know for sure yet whether this is a false break or a much bigger rally. But TSLA's prior interactions with key levels shows us that TSLA doesn't just tend to reach a key level, touch it, and then immediately reverse in a way that traders would prefer. (My gut feeling remains bearish, but gut feelings are unreliable and not an basis for decisions and not an indicator at all.)

Regarding the current day's candle. Today's candle may not qualify as a star. The real body is a little bigger than what most stars would be. But it is somewhat "star like" in that it gapped higher and closed indecisively with quite visible and significant wicks / shadows on either end. Perhaps this is the best star that a volatile mover like TSLA can provide. In any event, a star candle is a 3-star pattern where the 2nd candle gaps away from the 1st candle. The pattern is not complete until a third candle closes into the real body of the first candle. If this is to be a star-like pattern, then today's candle would be the 2nd in the pattern. If the 3rd candle in this case gaps downward, it would be an island reversal as well as a star.
DISCLAIMER on candlestick analysis: Candle analysis isn't the most reliable form of TA and it doesn't really help beyond a short-term time horizon. But sometimes it can be added to the mix to provide another clue.

Finally, if a bearish star pattern doesn't complete or confirm within the next trading session, 6/12/23, then today's gap up should be interpreted as short-term bullish leaving open the targets discussed in this post's original text. This is a tricky spot for people who bought today's strength. And it's tricky for bears because we don't yet have any confirmation lower.
In short, consolidation could still be in the cards given how extended price is. But because TSLA hasn't looked back since it's bull-flag breakout, it could push rapidly to $258 (Fibonacci level), $262 (gap level) or ($268 (measured move level) if the star-like pattern does not complete or confirm.

Finally, beware FOMC on 6/14 next week!

Note

Here is one more weekly chart to consider. The H&S neckline (major support for this topping formation) was broken to the downside in early October 2022. The important question for analysts and traders to answer is whether (1) this recovery of the neckline is simply part of a retest of the neckline (with usual whipsaws from TSLA) or (2) this is a complete invalidation of the H&S pattern with a huge false breakout below.

Note

To clarify the conversation around the "star-like" pattern seen with today's candle, consider the following illustrations and definitions.

Again, candlestick analysis isn't super reliable, but it can provide an added clue sometimes. And the star pattern isn't confirmed in this case until we get the third candle in the proper position that closes into the real body of the first candle.

The more important chart in my view is the neckline support of the H&S pattern. Bearish expectations remain more challenging as long as price continues to close above that level.

Finally -- please note that my comments in today's earlier update contained some typographical errors—the star pattern is a 3-*candle* pattern (not a 3-star pattern as inadvertently stated).

Note

As discussed in the previous update on June 9, a star pattern is not confirmed, not validated, unless and until the star pattern completes with a third candle closing into the body of the first candle of the 3-candle pattern. This never happened after June 9 if you look at a daily time frame.

Here is the commentary from the 6/9 update above: "Finally, if a bearish star pattern doesn't complete or confirm within the next trading session, 6/12/23, then today's gap up should be interpreted as short-term bullish leaving open the targets discussed in this post's original text. This is a tricky spot for people who bought today's strength. And it's tricky for bears because we don't yet have any confirmation lower.
In short, consolidation could still be in the cards given how extended price is. But because TSLA hasn't looked back since it's bull-flag breakout, it could push rapidly to $258 (Fibonacci level), $262 (gap level) or ($268 (measured move level) if the star-like pattern does not complete or confirm."

The above the ATH anchored VWAP caused bullish price action to continue. A star pattern looked possible with a gap up, but it was never confirmed. So price has continued from the bull-flag breakout to the targets discussed on June 9: $258, $262, and $268.

Note

Upside target of $262 at the gap-fill area has been met. The rally off the January 2023 lows at $101 reached a new high on Friday at $263.60.

But it seems that TLSA, like the Nasdaq 100 and Nasdaq Composite, may be ready to cool off at a minimum. Could the highs of the rally be in? No one knows, and don't we all wish we did. Prices are quite extended here, but the daily and weekly trends still remain up. Until that structure changes, calling a top may be premature even though many of us who watch yield curves and listen to the Fed want to see the market act sensibly in accordance with the bearish macro outlook. Overall, need more time to look at charts over the weekend and early next week.

Note

To continue the update for this weekend, here is the measured move area starting at $268. This was mentioned in the June 9 update after TSLA had closed and held above its ATH anchored VWAP.

Notice how this measured move area—ranging from 1.00 projection to a 1.272 projection of the first move off the lows—coincides with major resistance (previously support). This resistance zone was support for the entire topping pattern during late 2021 and early 2022. (The all-time high was formed in Nov. 2021)

It's unclear whether this measured-move and resistance area can be reached in the short term. We'll have to see. Momentum has been very strong, but prices are very extended to the upside. But on the other hand, this quarterly June OPEX was a major, call-heavy OPEX and TSLA was no exception.

In the intermediate to long term, it's hard to be bullish given the deeply inverted yield curves. Further, the Fed was very hawkish and so far the market is ignoring the Fed. Will this go well as time progresses? It doesn't seem like it should. But what's so confusing about it all is that the market's rally has been really untethered from fundamentals and reality.

THis is where true trend followers can shine. They ignore all the reasons why the market shouldn't rally and just keep holding positions as prices continue to hold key trend support / making higher lows, higher highs. And if the market turns, they just stop out presumably.

Going forward, any cool off period will give more clues about whether another leg to this rally will occur. Supports should be watched for bounces. Even if this is the peak of this rally cycle, a retest could occur. As it all unfolds, all traders can do is do their best and manage risk.

Note

One more chart with a somewhat different angle / perspective, reflecting the neckline of the H&S pattern that worked well last half of 2022:

Note also the downtrend line above.

Note

Looks like TSLA bulls are pumping it today, suckering in a few more buyers while price is extended quite a ways above its mean.

The measured-move area at $268 mentioned in several prior updates has been reached today.

Last week, price reached the $262 gap-fill area mentioned as a potential target in prior updates.

Here is a chart posted previously of the measured move area, with price action updated through today:

Note

Bears will be delighted if the weekly candle finishes anything like the way it looks today.

This is the first major rejection from the critical resistance / supply zone that forms the base of TSLA's entire topping pattern that formed from late-2020 to early 2022.

Note

Of course, price could always retest this major zone. A failure on a retest can sometimes prove to be a decent short entry with well defined (and close) risk / stop levels. But price doesn't have to retest at all. The bottom line for bears and bulls is to manage risk (which may include moving stops to breakeven as soon as possible if price starts moving in their expected direction). Bulls want to see price rise and hold back above this $270-$300 zone. The down TL has been drawn a couple different ways to reflect some ambiguity in its placement:

NVDA and some others broke to new highs in this tech-driven rally. The question is whether TSLA is too late to the party to succeed in that regard. It's impossible to tell for sure yet based on one day of weakness. A big down day, just like a big up day, is not unusual behavior for this stock.

Note

It may be more than a joke at this point that the CEO of TSLA and the CEO of META may be planning a cage match. It's hard to fathom that two billionaires of two of the world's largest publicly traded companies may do such a thing.

Major news publications (BBC, CNBC, and others) are now running with the story now after Twitter had been airing it for a while. Apparently, Zuckerberg asked for a location when Musk said something about being "up for a gage fight." The location stated was Vegas Octagon, which news reports say is a UFC arena based in Las Vegas, Nevada, US. Musk is about 52 years of age and Zuck is 39 and trains in martial arts such as jiu-jitsu.

UFC (Ultimate Fighting)'s executive Dana White says he has spoken with both billionaires and that fans would have to pay more to watch the fight.

Could this affect the stock in anyway (if a CEO vital to the company is severely injured or killed), or is this it merely about publicity and potentially couple bloody noses?

Let me know your thoughts. Odd sort of potential catalyst here, right?

Note

So delivery numbers reported in the coming days might beat expectations—but is that a positive if deliveries were increased due to steep price cuts, rebates and discounts (less revenue and lower margins on sales)? Elon Musk himself has tweeted a warning about the delivery numbers on Twitter, but it's hard to know how to interpret that warning.

Consensus estimate = 448,000 vehicles delivered in Q2 2023. If achieved, this is about +6% over prior quarter (Q1 2023) which saw 442,000 deliveries. But this increase may have come at the disadvantage of having to do steep price cuts and discounts as mentioned. Hard to know without the broader mathematical picture how much increased sales from increased deliveries are offset by the reduced price on sales.

lastly, TSLAs numbers keep rising in general, so maybe the market reacts positively. Catalysts tend to move TSLAs stock in a volatile way in both directions. Delivery numbers can be like mini-earnings reports with an outsized weekly effect on the stock. Wanted to share this potential fundamental catalyst that will appear shortly.

Note

An insightful commentary appeared on Twitter today by Andrew Dickson, the founder of Albert Bridge Capital and CIO of Alpha Europe Funds. Dickson has > 20 years' experience in investment management and finance, having started his management career at Fidelity Investments.

He noted the following incongruities (downtrends) in EPS estimates vs. stock price:
1. In late 2022, TSLA's sell-side analysts expected $6.34 EPS in 2023 (about 9 months ago estimates)
2. "And yet despite today's apparent 4% rev beat for Q2, 2023 EPS expectations have plummeted to $3.50. So earnings expectations for
TSLA
are now down -55% in 9 months and yet the stock is up +15%.
3. "In other words," he writes, "the 2023 P/E multiple has expanded from 38x to 79x, or by 107%."

This shows that price is often NOT driven by fundamentals. Exactly what was priced in when the stock fell to $100 in January? And what is different now that price is $278? Or maybe the question is whether the data that is priced in is heavily weighted toward liquidity, capital flows, seasonality, rather than fundamentals. But David Lundgren, a combined technical and fundamental analyst, who favors technicals in the short / intermediate term, says that fundamentals always matter in the long run. Here is a quotation from Lundgren from my past notes: "In the long-term, actual fundamentals will simply overwhelm any short-term technicals, emotions, sentiments driving a security or market price action."

Note

Further TSLA updates are moving to this new post:

TSLA Approaches Major Resistance and May Stall into July 21

SquishTrade

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