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Key Takeaways
- Tesla shares, the biggest gainer among Magnificent Seven stocks in the third quarter, fell Friday for the second straight day despite a better-than-expected deliveries report from the EV maker.
- The stock rallied to a nine-month high in Thursday’s trading session before closing below the prior day’s low to form a bearish engulfing pattern, a candlestick formation that warns of a potential move lower.
- Investors should watch crucial support levels on Tesla’s chart around $367 and $292, while also monitoring vital resistance levels near $489 and 660.60.
Tesla (TSLA) shares lost ground Friday morning after tumbling yesterday despite a better-than-expected deliveries report from the EV maker.
Investors appear to be locking in profits after the stock surged 40% in the third quarter, making it the best performing member of the Magnificent Seven over that period. Tesla shares were down 1.6% at $429 in recent trading, after dropping more than 5% on Thursday.
The stock has gotten a boost in recent months from CEO Elon Musk’s renewed commitment to the company after a stint working for the Trump administration, as well as investor optimism about the company’s development of autonomous driving systems and robotics as part of a more-intense focus on AI-related opportunities.
Investors will be watching for further business updates from Tesla when the company reports earnings on October 22.
Below, we take a closer look at Tesla’s chart and use technical analysis to point out crucial price levels worth watching out for.
Bearish Engulfing Pattern Emerges
Since breaking out from a broad ascending triangle last month that coincided with a bullish golden cross forming on the chart, Tesla shares had continued to trend higher.
However, in Thursday’s trading session, the stock closed below the prior day’s low to form a bearish engulfing pattern, a candlestick formation that warns of a potential move lower. Moreover, yesterday’s selling saw the relative strength index fall to its lowest level since early September, signaling weakening price momentum in the stock.
Let’s identify important support and resistance levels on Tesla’s chart that investors will likely be watching.
Crucial Support Levels to Watch
A move lower could see the shares initially test the $367 level. This area would likely attract buying interest near the ascending triangle’s top trendline that also forms part of a longer-term horizontal line extending back to November last year.
Tesla bulls’ failure to defend this level opens the door for a potential decline toward $292. Investors could seek entry points in this region near a trendline that connects a range of peaks and troughs on the chart between March and July.
Resistance Levels to Monitor
The first resistance level to monitor sits around $489. Tactical traders who have bought shares at lower prices may look for exit points in this location near the December peak, which also marks the stock’s all-time high.
Finally, If Tesla shares move into price discovery, investors can forecast a potential resistance level by using the measured move technique, also known by chart watchers as the measuring principle.
When applying the analysis to Tesla’s chart, we calculate the percentage change near the widest section of the ascending triangle and add it to the pattern top trendline value. For instance, we apply an 80% increase to $367, which projects an upside target of $660.60.
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As of the date this article was written, the author does not own any of the above securities.
