Tesla Stock's Sharp Rise From Its Lows Makes for a Tough Earnings Breakout
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Shares of Tesla (TSLA) - Get Report have been rallying with purpose over the past two months and earnings after the closing bell on Wednesday are sure to be a must-watch event.
The conference call and headline results will be colorful, while the stock has been trading in its own dramatic fashion.
Tesla stock was locked in a nasty multi-month downtrend, but many investors felt OK as shares drifted down to multi-year range support between $250 and $260. This level has buoyed Tesla stock for years -- why wouldn't it now?
When the stock went crashing through this area in April, that's when panic ensued. The stock bottomed a little more than a month later, after breaching but holding the vital $180 mark. Since then, Tesla has rallied 47% from those lows.
What should investors expect from the electric automaker when it releases its second-quarter results after the close on Wednesday?
Trading Tesla Stock
The problem with Tesla stock? It's been so hot over the last two months that it's hard to handle. Shares fell about 50% after the first week of trading in 2019 to its lows in June. Since then, it's rallied almost 50% to current levels. The only difference is that it took five months for the former and less than two months for the latter.
Shares are working on their eighth straight week of gains, although Wednesday's earnings report will be the deciding factor in whether it accomplishes that feat.
Aside from a mega-rally from the lows, Tesla stock is running right back into prior range support. This area was very significant and while the stock is pushing through on Wednesday -- albeit barely -- I would be concerned about riding this one back into what may now be resistance.
Case in point: You'll notice on the chart that when Tesla stock significantly broke below support it turned to resistance a week later (purple arrow). If that remains the case, lower prices may be in order.
On the upside, bulls first need to see TSLA stock solidify above prior range support. That means closing out the week above $260. Above that and bulls can look for a rally up to the $273 to $283 range. The first is the 200-week moving average, while the second is the 50-week moving average and the 50% retracement for the one-year range.
If Tesla can push through all of that, the 38.2% retracement is up at $307.06.
On the downside, bulls still have a case to make if Tesla stock were to hold the 10-week moving average near $340. That would keep its trend of higher lows intact and give the stock a breather before retesting this vital area between $250 and $260.
Below that mark and bulls will want to see $230 hold as support. If it doesn't, the backside of prior channel resistance (blue line) and $210 will be next up. If all these levels fail, sub-$200 may be in order.
This article is commentary by an independent contributor. At the time of publication, the author had no positions in the stocks mentioned.