Short

Say It Ain't So, Tesla Is a Heartbreaker!

Updated

Primary Chart: 1W Chart Showing Head and Shoulders Pattern with Its Proportional Objective along with Fibonacci Levels

Summary:

TSLA held up for much of the year better than most tech / growth stocks, but it has recently shown a great deal of weakness, breaking to new YTD lows.
Initial targets are $175-$185, from which zone a corrective bounce may be likely, though not certain depending on how much acceleration this stock has to the downside. Only when this zone is broken decisively should lower targets be considered viable.
Next level targets are $151-$157. Only if this zone is broken decisively should lower targets be considered viable.
Next level targets are $130-$138. Only if this zone is broken decisively should lower targets be considered viable.
The last targets for this analysis are $98-$107.
TSLA broke the neckline of a multi-year H&S pattern, and by measuring proportions of the pattern and projecting them, an objective for the breakout is around $100, a price level that shows confluence with several Fibonacci levels that are long-term.
This analysis and all the targets identified assume the breakout succeeds. If the breakout fails, and the neckline is reclaimed, this would be short and intermediate term bullish and negate the bearish case until / unless the neckline is broken again.
Fibonacci targets align with the H&S proportional objective.

Many TSLA fans are perhaps more disappointed in TSLA's stock price this year than with their electric vehicles this year. TSLA has been selling off sharply since mid-September 2022 after declining less (relatively) than most tech / growth stocks.

Initial support may be the $175-$185 range from which a bounce might be anticipated.

Supplementary Chart A: Initial Support

But a head and shoulders pattern has been confirmed on a larger time frame. "Confirmed" means a break of the neckline has occurred, shown as the dotted blue line on the H&S pattern shown on the Primary Chart. A H&S is a common and widely recognized technical pattern. So because everyone is looking at the pattern and readily identifying it, the pattern does not always work out as expected.

In this case, the proportional objective for a downside breakout from the pattern is around $100. Before the most recent 3-for-1 split, that would have been about $300.

The head-and-shoulders price objective derives from a proportion of the pattern projected from the breakout point. The proportion used is the maximum height of the pattern, measured from the peak of the head to the neckline just below. Then this height is projected from the neckline breakout.

Finally, a number of key Fibonacci levels—on both linear and log charts—align with the H&S pattern's objective, in the $98 to $100 range. This could take some time to achieve, so multi-week rallies should not invalidate this analysis unless they reclaim the neckline, in which case the entire H&S argument should be negated (which is bullish).

Note that the linear Fibonacci levels are shown below:

Supplementary Chart B: Linear Chart Fibonacci Levels

For a easier visual comparison, here are the logarithmic Fibonacci Levels to be viewed adjacent to the linear Fibonacci levels:

Supplementary Chart C: Linear Chart Fibonacci Levels

Lastly, just because this chart is super bearish does not mean that jumping in to short is a good idea especially after the stock is well extended to the downside. Do what works best with your trading system and specific risk-management rules. SquishTrade prefers to short after failure at well-defined resistance levels towards the end of bear bounces.

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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

Apparently Elon Musk, TSLA's CEO, has been selling more TSLA shares, which has increased the volume to some extent. According to a Barron's article published today, "the cash raised by selling stock might have been needed to finish off paying for Twitter." The same article notes, however, that the "timing was off" because "the sales came in after the Twitter deal closed in October." But the sales could be related.

Barron's also explains that Musk's sales in the first week of November only represented about 6% of total transaction volume.
But overall volume per day has been 40% higher than the average daily trading volume over the past 30 days. So Musk's sales are not the main cause of higher volume and stock declines

Note

As TSLA rallies along with markets, it's important to watch resistance levels (e.g., retracements) as well as the breakout point for that massive H&S pattern. The breakout point seems like a long way up, but markets are rallying hard, so in coming weeks, that will be important to watch. The breakout point is at about $220.

Note

TSLA can continue bouncing over the next few weeks with bullish seasonality supportive of TSLA and equities generally.

Here is the uptrend channel that has begun to form off the YTD low:

First target = $198-$200. Once that is reclaimed, then $212, then $212. Unlikely to break November highs in our opinion at $237. But remaining open minded. This rally where NDX climbed 7.5% only occurs in bear markets, not bull markets. But a bounce like this points to higher prices in the short term.

Note

Want to reiterate a point made in the initial post above regarding this longer-term forecast: "This analysis and all the targets identified assume the breakout (from the H&S pattern) succeeds. If the breakout fails, and the neckline is reclaimed, this would be short and intermediate term bullish and negate the bearish case until / unless the neckline is broken again."

In the most recent update, ST noted that the first target for this bounce is $198-$200. TSLA virtually reached this target on Friday, November 11, 2022, with a high on the day of $196.52. But price pulled back and closed at $195.97, which was nevertheless a strong close, suggesting this rally isn't over even if consolidative pullbacks occur. With how heated markets have been, ST suspects (but can't guarantee) that some consolidation of recent gains in markets will occur over the coming days. However, prices in general will remain relatively supported going into options expiration for the month on Nov. 18, 2022.

If $198-$200 is reclaimed and held, the next likely target up would be $205, then $212, then $222. These moves must be taken level by level. No one can predict how far bear rallies can run, or how low bear selloffs can fall. Some well-respected veteran traders say to stop trying to predict, but instead just follow price. Price still shows a downtrend on longer time frames (daily / weekly) and in shorter time frames this uptrend has to be respected. Wish it were easier to predict price action, but for now, ST remains focused on staying flexible and watching the key levels, trendlines and other technicals.

Final note: Liz Ann Sonders, the chief equity strategist at a major US brokerage, Charles Schwab, noted today that the 7.4% rally in the NDX puts the rally in the top 20 days going back to 1971. Her data show that of those largest 20 moves (each occurring in one day / trading session), 16/20 were in bear markets. Sometimes data helps when the emotions start to swirl and people all over social media are calling the market bottom. Nobody knows, nobody can predict, but the odds based on the data favor this being a bear rally. That's how ST is thinking of this--in terms of probabilities, not certainties.

How crypto plays out may affect equities, though it seems some decoupling of the correlation b/w equity markets and crypto has been occurring. When equity markets were plummeting in late August, September and October, BTC and ETH for example traded in a sideways range (BTC around $19,246 for many weeks). Now, equities are rallying hard while cryptos are under great pressure due to the FTX debacle. Uncertain times indeed.

Note

The countertrend rally in equities consolidated a bit today. But the first countertrend target of $198-$200 (provided in the Nov. 10 update) remains viable subject to the caveat that a countertrend rally can fail at any time and is lower probability. See the updated intraday chart below

The main point of the original post was to show the H&S breakout to the downside and provide longer-term PTs for the downtrend. the countertrend bounces are sort of like "noise" within the larger downtrend, but the updates are evaluating them as well.

In the initial post on November 8, SquishTrade noted the likely possibility of a bounce at the initial downside support at $175-$185, noting as follows: "Initial targets are $175-$185, from which zone a corrective bounce may be likely, though not certain depending on how much acceleration this stock has to the downside. Only when this zone is broken decisively should lower targets be considered viable." This remains a key level to watch to confirm the move to the downside has begun again in earnest.

As long as the H&S breakout to the downside remains valid (i.e., as long as the breakout level is not reclaimed to the upside), the PTs remain valid.

Note

In the initial post on Nov. 8, ST noted the likelihood of a bounce a the major support zone of $175-$185. That bounce has occurred. ST began providing updates with countertrend PTs.

The first countertrend PT was $198-$200. That has been reached.
If price reclaims $200 on a close, then ST expects $205-207 next. At this time, the risk reward seems poor here for further countertrend trading. Sure, TSLA could run to $220, but nothing can be guaranteed, and the bet is going against the larger downward tide. Notice the price action as it moves higher—it's not impulsive, but choppy and indecisive, struggling higher typical of countertrend corrective action.

Over the coming days / weeks, ST will be watching for a reversal in DXY to the upside, which *might* occur, and if so, it would be a signal equities are nearing the end of their bounce. TSLA and AMZN may be excellent shorts when indices begin moving lower again. But ST will be respecting the bear rally until it's done with its devious work.

Note

TSLA may have begun its next leg lower. While nothing is certain in markets, a move lower looks more likely for several reasons:

1. TSLA has been weak despite many stocks rallying powerfully the past few weeks.
2. TSLA failed at a key retracement (blue arrow on chart below)
3. TSLA broke below its parallel uptrend channel off the lows.

TSLA may bounce from the .618 retracement of the rally off YTD lows on Nov. 9. That bounce may provide a good risk/reward short for some swing traders wishing to play the move downward to the next support zone identified in the original post above.

Watch for the bounce to fail at key resistance, e.g., a Fibonacci retracement or other price resistance.

Note

Daily chart showing the same breakout below the uptrend line from the YTD low on Nov. 9.

Note

If TSLA's price would cooperate and provide a good little bounce that doesn't take out the highs, a nice short would be at the bounce shown below perhaps. But follow your own trading system and rules / risk management.

Note

TSLA sliced through its .618 and .786 retracements of the bounce off the Nov. 9 low. In fact, TSLA undercut its prior YTD low (Nov. 9 low) today making a new low today. This is bearish in the intermediate term, suggesting the next leg of decline is in fact unfolding as suggested in a recent update to this post.

However, if TSLA reacts from this support zone again (with a lower shadow and a *close* well off the lows), this could represent a "failed breakdown," and this may lead to the short-term rally that is a corrective retracement discussed in prior updates.

Note

An intraday chart was posted on November 18 when price was at $187.06 (see Nov. 18 update). ST noted that one could wish for a bounce (like the hypothetical one drawn on the chart shown in the Nov. 18 update) to short TSLA, but that bounce didn't happen and price ran almost directly to a new low at $166.19. After that new low, a bounce occurred. But the Nov. 18 update cautioned that "if TSLA reacts from the support zone (the light red box on the main chart), this could represent a failed breakdown leading to a short-term rally. That is exactly what price did. It broke below the red support zone at $175-$183 and then immediately recovered back into it. This was a failed breakdown and signaled short term bears should exit and prepare for a bounce as discussed. Price bounced to $198.

Overall, the broader thesis of new lows for TSLA remains intact. Technicals in the intermediate term remain decidedly bearish. However, price action in TSLA and the indices has been choppy and unpredictable, wreaking havoc on bears and bulls alike. No one knows whether markets will move sideways, higher, or lower into the first week of January.

Despite the broader view being bearish, choppy waters likely lie ahead. FOMC and CPI reports occur next week. Catalysts like these have taught market participants that—especially in bear markets around major macro news data releases—price can move in either direction in a drastic way on such days. In addition, price can even move in two or three whipsaws on some of these days.

Short or long positions before and into these events are very risky and more likely to fail unless an equity cushion has already been well established, and even then, depending on the type of position, major risk can still be present.

Conversely, waiting until price has made a huge move to the downside (or upside) might mean missing the move. But in markets, better setups with less unpredictability will always be in supply, but they may require patience. The best setups don't occur every day and every week.

SquishTrade's view is that shorting TSLA here at $179 after a 3-4 day decline does not present the best R/R. Sure, price may fall a few more points to squeeze out a little profit, but will the trader be ready for the next whipsaw move higher? And maybe price will move down to $150-$157 in a few trading session this week. And maybe one might miss that move. Being a good trader means allowing oneself to miss moves where the setup isn't great. With FOMC and CPI data drop, a straight line this week to new lows doesn't seem like a higher probability, higher conviction trade idea.

Lastly, as soon as price closes below the major support zone of $175-$183, that is likely the clearest confirmation that $151-$157 is in play. But by the time price closes below $175, price may be extended to the downside too much for most trading strategies. So consider how price responds on the next bounce, if we get one, and define risk at that level for shorts when the bounce looks exhausted. Keep an eye on indices. Don't short TSLA if the indices are breaking above their major down TLs on some unexpected Fed move or inflation print.

Note

TSLA had a daily candle close below the key support zone (red rectangle identified above in the main chart) from $175-$183. Click on the refresh link on the primary chart at the top. The primary chart is a weekly chart, however, so it will be interesting to see if the weekly candle closes below this level too. With an important level like this, one has to be prepared for whipsaws around it before a decisive break. The first break of this zone was in fact a whipsaw. Price hit $166 below this zone, and then spiked back above it up to $198.

Price may move down a bit more, but it seems that a bounce could be imminent. It might be tough for the next bounce to break all the way through this zone. We'll have to wait and see.

Note

Short-term traders may want to focus on this parallel channel as a way to define risk. A move (daily close at least) above the upper boundary of the channel delays the downward price trend in the short term, but does not invalidate the longer-term bearish trend.

SquishTrade will be watching the .618 retracement of the most recent leg down from $198.92 on December 1, 2022. The .618 R comes in around $186-$187. This nearly coincides with the down TL that forms the top edge of the parallel channel.

This week is exceedingly risky with FOMC and CPI. Bears and bulls may both take hits in the same two-day period. And OPEX is on Friday. Lots of ways to lose money.

Note

Despite markets ripping higher at the open, TSLA continues to go in the direction of the longer-term bearish view.

Note

First target reached at the $151-$157 zone. Price fell to an intraday low of $155, well within this range.

Note

TSLA reached another YTD low today. So much for seasonality! But seasonality could support a bounce into the year end and into January.

There are other reasons to expect a bounce soon. Risk / reward for shorts is getting poorer by the day. Prepare for a bounce based on divergences and downside exhaustion:

Note

Yesterday's update showed that some evidence supports a countertrend bounce into year end. That idea has been fleshed out in today's post linked here:

Tactical Bounce for Tesla into Year End / New Year

Trade closed: target reached

TSLA has reached the third target zone produced by the above analysis. The third target zone was about $130-$138.

The first target was $175-$183
The second target was $151-$157
The third target was $130-$138.
The most aggressive target was $98-$107.

SquishTrade still suspects this target will be reached. But with price having reached the majority of the targets given, the idea will be closed for now. One key element of the analysis was that TSLA had broken the neckline of a multi-year H&S pattern, and by measuring proportions of the pattern and projecting them, an objective for the breakout resulted at $100, a price level that shows confluence with several Fibonacci levels that are long-term. These may still be viable into 1H 2023.

Thanks for following along!

SquishTrade

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