Tesla, Inc TSLA gapped up over 3% on Thursday and continued to lift higher after the market opened. The move comes after the stock broke higher from a bull flag pattern on Wednesday, which Benzinga pointed out may happen on Monday.
The bull flag pattern is created with a sharp rise higher forming the pole, which is then followed by a consolidation pattern that brings the stock lower between a channel with parallel lines or into a tightening triangle pattern.
- For bearish traders, the “trend is your friend” (until it’s not) and the stock may continue downward within the following channel for a short period of time. Aggressive traders may decide to short the stock at the upper trendline and exit the trade at the lower trendline.
- Bullish traders will want to watch for a break up from the upper descending trendline of the flag formation, on high volume, for an entry. When a stock breaks up from a bull flag pattern, the measured move higher is equal to the length of the pole and should be added to the lowest price within the flag.
A bull flag is negated when a stock closes a trading day below the lower trendline of the flag pattern or if the flag falls more than 50% down the length of the pole.
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The Tesla Chart: Tesla formed a bull flag pattern between Jan. 31 and Wednesday, with the pole formed over the first four days of that trading range and the flag created over the days that followed. The measured move of the break of the flag is about 22%, which suggests Tesla could surge toward $223.
- If Tesla reaches that level, the stock will run into two major resistance zones that correspond to that area: the 200-day simple moving average (SMA) and a long-term ascending trendline.
- The 200-day SMA is a massive area of support and resistance on its own but because a trendline has printed at that area, Tesla is very unlikely to break above the 200-day on the first or even second try.
- If Tesla stalls near $223, traders and investors can watch for the stock to trade slightly lower or sideways under that area to gain the strength to burst up through the 200-day SMA, which could be an indication to go long.
- If Tesla rejects that area hard and negates its uptrend, it could be an indication to go short. Unless that happens, bearish traders may choose to scalp miner pullbacks on smaller time frames. A pullback is likely to come soon because Tesla’s relative strength index is in severe overbought territory.
- Tesla has resistance above at $213.13 and $225.03 and support below at $200.51 and $190.41.
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