Caution: It May Be Time to Take Some Profits on This Stock

It’s no secret that shares of Tesla Inc (NASDAQ:TSLA) are on a massive tear year-to-date, up almost 74% so far.

While respecting this general trend as well as its underpinning forces, it’s also worth noting that each time TSLA stock has reached near-term overbought readings — as is currently the case — the stock has slipped into a consolidation period.

In other words, the current spot in Tesla may offer tactical longs an opportunity to take some profits.

More active investors or traders could even look for a “cute” stab on the short side for a counter-trend cash-generation trade.

To be clear, I personally like the underlying story in Tesla.

What’s difficult to argue right now is “sound valuation” in the name.

That’s said knowing full well that from time to time, such metrics don’t matter for growth stocks. Seeing how such “believe” stories can carry high momentum, I wouldn’t want to be caught short the stock.

However, because everything is relevant to the time-frame within which one operates from a trading perspective, I also want to lighten up on long positions when a stock gets near-term overbought and even possibly consider quick short-side trades.

Before looking at the charts of TSLA stock, keep in mind that shares at this juncture could trade in tandem with other large-cap tech stocks, some of which have pulled back over the past week and a half. Tesla might not be a traditional tech company, but the theme thus far in 2017 has been for it and similar big-time tech-related growth stories to outperform.

It’s not a stretch to imagine Tesla stock pausing a little if some of the Nasdaq’s largest holdings also slow down.

TSLA Stock Charts
On the multiyear weekly chart, we see that after a well-defined sideways trot, TSLA finally this past April managed to break out of this range to the upside.

From this angle, however, the rally since has largely been nonstop. This has Tesla’s momentum indicators — such as the MACD — at historic overbought readings, both on the weekly and daily charts.

This alone is no case to short a stock, but TSLA ultimately could need a better move back to the high $200s or at least the low $300s to retest the previous area of horizontal resistance and formally mark this area as support.

On the daily chart, we see that the most recent multiweek rally now has TSLA stock back up at the upper end of the rising channel.

Also note that Tesla stock is now once more well extended above even its near-term moving averages, such as the yellow 21-day.

One last thing to note. On June 14, shares gapped higher and left a so-called doji candle behind on the daily chart. The next day, TSLA gapped lower again, potentially marking a near-term top.

From a tactical trading perspective, I’d like to see TSLA stock give us a daily close below $367 before considering any short positions. But if and when this takes hold, I could see legging into a short position either via the stock itself or by buying bull put spreads.

Your initial price target should be near $350, possibly followed by $340.

— Serge Berger

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Source: Investor Place