The well-known American automotive and energy company that specializes in electric car manufacturing and, through its SolarCity subsidiary, solar panel manufacturing, Tesla Inc. (NASDAQ: TSLA) seem to be getting ready for a price surge according to its latest charts.
#1 Cup and Handle pattern: The daily chart of TSLA shows that the stock has been forming a cup and handle pattern. This is marked in the chart below in purple color. A cup and handle pattern is a consolidation and breakout pattern. A breakout from this pattern indicates that the stock may move higher. Typically, stocks retrace to the breakout level again before continuing the upmove.
#2 MACD above Signal Line: The daily chart shows that the MACD (light blue color) is currently above the MACD signal line (orange color). This typically indicates a bullish setup.
#4 Above MAs: The stock is currently above both 50-day as well as 200-day SMA, indicating that the bulls are in control.
#5 %K above %D: The %K line of the stochastic is currently above the %D line, indicating bullishness.
#6 Double Bottom Breakout: In the daily chart, the stock had formed a double bottom pattern, which is a bullish reversal pattern.
This is marked in orange color.
The stock has currently broken out of this double bottom pattern, indicating that it could possibly move upwards.
#7 %K above %D: In the weekly chart as well, the %K line is above the %D line of stochastic. This is a possible bullish sign. The stock is also above its 50-week and 200-week SMA, indicating bullishness in the short term.
#8 Strong RSI: The RSI is above 50 and moving up in the weekly chart, indicating strength.
#9 Double Bottom Pattern: In the weekly chart, the stock is currently forming a double bottom pattern, which is a bullish reversal pattern. This is marked in orange color. Once the stock breaks out of the double bottom pattern, it may move higher.
Recommended Trade (based on the charts)
Buy Levels: If you want to get in on this trade, the ideal buy level is if the stock closes above the resistance level of $363.
TP: Our target prices are $380 and $400 in the next 3-6 months. This is based on the breakout level from the cup and handle pattern.
SL: To limit risk, place stop loss at $354. Note that the stop loss is on a closing basis.
Our target potential upside is 5% to 10% in the next 3-6 months. For a risk of $9.00, our target rewards are $17.00 and $37.00. This is a nearly 1:2 and 1:4 risk-reward trade.
In other words, this trade offers nearly 2x to 4x more potential upside than downside.
Risks to Consider
The stock may reverse its overall trend if it breaks down from the cup and handle pattern. The sell-off of the stock could also be triggered in case of any negative news, overall weakness in the market, or any new government rules or regulatory changes in its sector.
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