Tesla Hits New High and Causes Storm in ‘Shortville’

Tesla has been on fire and it continues to run after better-than-expected earnings. Here's what the charts look like for the stock.
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The storm in "Shortville" continues, with Tesla  (TSLA) - Get Report stock pouring on even more pain to the bears as shares rally 10% on Thursday.

The stock is surging to new all-time highs after better-than-expected earnings. In April 2017, CEO Elon Musk tweeted that there’s “stormy weather in Shortville,” but even he may not have seen this downpour coming.

Particularly after shares were trading below $200 in June as investors worried about the automaker’s liquidity. Now sporting a current high of $650.88, shares are up more than 267% or almost four-fold from its summer lows.

Is it any wonder that Real Money has selected Tesla as its Stock of the Day? Let’s look at the chart.

Trading Tesla Stock

Daily chart of Tesla stock.

Daily chart of Tesla stock.

It doesn’t matter if Tesla stock is overbought. I have increasingly seen investors argue that the stock can’t go up anymore. Why can’t it? Some will point to its elevated RSI reading, or relative strength index.

The RSI measures how overbought or oversold a stock is, and let’s make no mistake about it, Tesla stock is overbought. But that doesn’t mean it can’t stay overbought for a prolonged period of time. Just look at the chart above, highlighting exactly that.

Tesla stock has basically been overbought since October, save for a few weeks of consolidation between November and December. Since it first became overbought, we’ve seen shares more than double from $300.

I don’t know when the rally ends, how high it will go before it does or where it will ultimately pull back to when the music stops. But what matters here is the trend, and until that breaks Tesla stock can keep going higher. 

Don't misconstrue that statement as it doesn't translate to being incredibly bullish. Trading is not a black-and-white situation. One can respect the trend in place without being bullish on Tesla. 

Weekly chart of Tesla stock. 

Weekly chart of Tesla stock. 

Tesla stock is working on its ninth straight weekly advance. It could pull all the way back to its 10-week moving average - currently $174 or 26.7% below current levels - and still be okay from a technical perspective.

For the time being, TSLA stock hasn’t even been able to dip down to the 20-day moving average before being snapped up by bulls. Active investors will likely continue to buy the dips in Tesla. Until shares close below the 20-day moving average, which hasn’t happened since early December, it’s hard to bet against Tesla stock at the moment. 

On the upside, if we measure from the June low to the range high up near $390, we get a two-times range extension up to $602. The 2.236% extension is at $652.41 and the 2.382% extension is at $683.45. 

That doesn't mean Tesla will get these marks necessarily, but instead, it means they aren't off the table until the stock breaks its current trend.