When the mighty fall, it's often a sight to behold, unless you were one of the last to join the party at the highs. Our decision support engine (DSE) has allowed us to warn in advance, and forecast in these pages, upcoming conclusions to manic rallies, as well as falling-knife declines, about many of these large degree trend changes, many of which are already well into new trends in the opposite directions.
Another one of these forecasts came as recently as November 30, when the decision support engine warned of the latest opportunity to exit a rising trend (at that time, a lower high), before the next slide arrived. That was the last time we analyzed shares of Tesla (TSLA - Get Report) . The stock had risen back to 230, and we warned about an imminent decline that should put in a low that should last a long time. The initial support zone for this coming low was forecast to be near 170 +/-10, with a chance of 140 +/-10. As this updated chart of the one that appeared in that forecast shows, Tesla has reached the first price zone, now 60 points, or 26%, lower than the day of that forecast.Click here to see the below chart in a new window
While the lower price zone can't, yet, be ruled out, the time has arrived to cover all Tesla short exposure, if you are lucky enough to have any, and begin to establish long exposure; here, now, today. Why?
First, the stochastics are now in the oversold green zone, testing the 10% extreme threshold. This is where selling is never, ever, indicated, and buying actions are (as in either protective buy stops on shorts, or buys to get long). Second, price is below the golden/olive 2 standard deviation band (2 sdb), which contains 95% of normality, and testing the orange line, as I write, which contains 99.7% of normality. Statistically, these extremes are impossible to maintain for more than a few hours/days. Notice how little time is spent outside these bands. Also, the minimum number of sub-waves within the decline from at least the red B label, near 245, if not the wave B's at higher degrees of trend, to conclude that the entire decline off the 290 level is complete. And, the higher green box within the large green box has been entered, where DSE forecast the shares would fell into back at its prior sell warnings. Therefore, Tesla shares are, as concluded by these objective/empirical historical "if-then" comparisons, now in the condition where buying is optimal, and selling is not.
By the way, before the November 30th sell signal at 230, the DSE gave a short term buy signal on November 3, when it forecast a move from 210 to 230. Impressive, yes, but nothing compared to the analysis and forecast the DSE allowed on June 26, when the shares were trading around 265, and the forecast pointed to the price zone now being probed.
If you are short, consider using 178 now as your buy stop level, to protect against giving back your profits, as Tesla bounces toward 210 in the coming weeks/months, if not the 250 level (shown by the two red arrows). If flat, and patiently awaiting an opportunity to establish long exposure, that same level is reasonable to begin buying, but hold some capital back in case lower (massive) support near 150 is probed, which would test the lower 4 sdb, containing 99.9% of normality. If long already, this is the time to be using buying actions to maintain or add to long exposure. While the news surrounding Tesla's sales, demand, and everything else has become gloomy of late, some news is just around the corner that will justify the forecast that the DSE is now anticipating.
Interested in this kind of market analysis? Sign up today for a FREE 7-day trial of our Decision Support Engine Premium Service at no obligation. Inquire about special pricing for TheStreet.com readers after your complimentary trial.