Finding Tesla's Sweet Spot

Ed Ponsi

Electric vehicle manufacturer Tesla has had an amazing year. This stock has gained nearly 400% so far this year, after a breakout caused a massive short covering rally. What's the sweet spot for traders looking to add Tesla to their portfolios? Let's go to the charts to find out. 

tsla

The black parallel lines on this chart represent Tesla's bull channel. In August, excitement over a stock split and other factors caused Tesla to rocket above its channel, which could be interpreted as an overbought signal. 

Here's the key to buying Tesla. Look how the stock behaves when it comes into the center of the channel, represented by the blue dotted line. That line coincides with Tesla's 50 day moving average, shown in red. 

What happens when the price reaches the center of the channel and the 50 day moving average combination? Tesla experienced a strong bounce on September 8th, point A on the chart. Another strong bounce occurred on September 24th, represented by point B. 

Here's my game plan for Tesla: I'm buying the stock if it falls to the center of the channel, which is currently near $380. Hopefully, the stock will bounce from there. If Tesla drops below the lower boundary of its channel, I'll cut my losses. 

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Ed Ponsi is the managing director of Barchetta Capital Management, and is the author of three books for publisher Wiley Finance. A dynamic public speaker, Ed has made appearances around the world, in such diverse locations as Singapore, Dubai, London, and New York. For more information about Ed and his work, click here.