Tesla (TSLA) - Get Report was able to extend the battery life for owners of the Model S/X60/60D vehicles attempting to evacuate areas of Florida by performing an automatic update. The boost in driving range has helped boost the stock price, which is up 5.4%, or $19, near $362 at this point in Monday's session. This surge has taken it through the resistance line of a symmetrical triangle on the daily chart.
Tesla spent the first half of this year in rally mode, but after making its June high, pulled back and has been consolidating, with a series of higher lows and lower highs. These oscillations around the 50-day moving average formed the triangle or wedge pattern. A confirmed breakout projects a nearly 20% move higher, but there are some technical issues to watch as the move progresses.
The chart shows the 112% move in the stock price from its low in December last year to its high in June this year. The sharp pullback in July took it down to the 38% retracement level of the 2016 and 2017 range. A hammer low formed in early August and the stock rallied back up to its 50-day moving average later in the month, at which point it began trading in an even narrower range, within the triangle trend lines. This diminishing volatility has compressed the width of the Bollinger bands and periods of low volatility like this are often resolved by periods of high volatility, which means a sharp move in price.
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The stochastic oscillator has been making a series of higher lows and is moving above its center line, suggesting underlying improvement in the direction of price momentum. One level of confirmation would be for the moving average convergence/divergence indicator to break above the downtrend line on its graph.
The first technical issue to watch for is volume and accompanying money flow. Overall volume has been weak for the last month and Chaikin money flow is rising but in negative territory, both of these readings will have to improve to support the current breakout move.
The second technical condition to be aware of is that this breakout has taken place very close to the apex of the triangle, and often the move that follows a near apex breakout does not have the momentum or sustainability of breakouts that occur more toward the middle range. They sometimes require a retest of the initial breakout level and are prone to failure.
An upper candle close in Tesla is a speculative long entry point using a position that accommodates an initial stop under the triangle uptrend line. It may be prudent to size into a position expecting a retest of the downtrend line and monitor volume and money flow.
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The author is an independent contributor and at the time of publication had no position in the stocks mentioned.