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Tesla Is Going Parabolic - Here’s How to Trade It Now

Tesla continues to surge higher, but it can't rally forever. Here's how to trade the stock now.

Tesla  (TSLA) - Get Tesla Inc. Report shares were rocketing higher again on Monday, up 3.6% as bulls were fixed on getting the share price to $420, the price CEO Elon Musk once said at which he planned to take Tesla private.

While the shares accomplished the feat, it doesn’t change the fact that shares are still overbought in the short term.

Tesla stock is working on its fourth straight day of gains, and its 10th gain in 12 sessions. After gapping higher on its October earnings report, shares have raced higher by 65% and are now up 137% from the June lows.

Those are a lot of numbers to digest, but the gist is this: Tesla shares have been on fire. As we near the end of the year, Tesla’s resurgence makes it an excellent candidate for Real Money’s Stock of the Day.

Let’s look at the charts.

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Trading Tesla Stock

Weekly chart of Tesla stock. 

Weekly chart of Tesla stock. 

Above is a three-year weekly chart for Tesla stock, where investors can clearly see the most recent post-earnings action (orange circle). The move thrust Tesla shares over the 50-week and 200-week moving averages, before the stock consolidated for several weeks.

During this consolidation phase, Tesla shares continued to put in a series of higher lows, while a static level of resistance continued to draw in sellers. This setup - where uptrend support guides the price higher into a static level of resistance - is known as an ascending triangle, a bullish technical development.

Once resistance near $360 gave way, shares exploded higher and ended last week north of $400. From here, it’s anyone’s guess where it goes next. Does Tesla blow through $420 and go to $450? Does it gap higher and deflate back down below $400?

There’s no way to be sure. According to the relative strength index (blue circle), the stock hasn’t been this overbought since June 2017. It’s not as overbought as it was then, when Tesla previously topped out at $389.61. Meaning it could continue to run a bit higher still, but the reading is high enough to suggest shares may cool off in the near term.

Bulls wanting to buy on a pullback below $400, can look to see if the $387 to $390 area acts as support. This level was resistance for years and could buoy Tesla stock on a dip.

Below that and the 10-week moving average is in play, along with the $360 breakout level from the fourth quarter. If all of these levels fail to support Tesla, bulls’ best bet may be to let shares settle down, given that it can often be a volatile ride.