TechNerdOmar

TSLA Major Correction? Share your thoughts!

Long
NASDAQ:TSLA   TESLA INC
Today I decided to zoom out and look at the big picture. I was looking at the monthly chart of NASDAQ:TSLA . I noticed that the current month is a green 8 on the TD sell setup, which means that next month is going to be the reversal signal. I imagine the candle of February to be red or a bearish pin bar ( shooting star ). Before I dive into the analysis, I want to make clear that I am long TSLA . Fundamentals have not changed. Tesla is going to be the biggest disruptor of the decade. What this analysis suggests is merely a correction. The scale of the correction might be too big. I measured it to be 38% at the smallest price range of the movement, and 49% at most. It is. no doubt. steep compared to the most recent correction of 34% in Sep 2020 which I marked in the chart above. Either way, TSLA is no stranger to these swings, so let's give it a deeper look.

I previously called a target for TSLA at $1050 which lies above the border of the broadening wedge . This target has not yet been achieved, so we're still in that long position. It's actually playing out as drawn (see related idea). From there, I see a breakout and going to new highs towards $2000 during 2021 as this image illustrates.

But seriously, how is it fun sailing up to $2000 without some bumpiness? Right? From where we are right now, a rise to $2000 makes a little more than 2X in terms of gain. But take it down a notch and correct to about $550 and then jack it up all the way to $2200; and you get the headline "Tesla climbs 4X in 3 months as more wall street shorts get liquidated!". Michael Burry will have exited his short of course. Oh and what would cause such a crash is perhaps another Tesla crashing into a police patrol while on full-self driving. Now that we imagined it, let's see it on the chart.

I drew two downward paths. Both are one-month long. The first starts after the $1050 target is reached. This will be the ultimate bull trap. Traders who sell at the top of the broadening wedge and would re-enter once price has broken above it are the ones that will eat the bull trap. The second path I drew starts after some consolidation along the next descending resistance line. Notice these parallel dotted descending lines. I estimated the next one using Fibonacci. So the idea of the second dotted path is that price gets squeezed between the descending trend line and the ascending top of the broadening wedge . At that point, I know that I will be in so much doubt whether price will plunge downwards from that squeeze or explore upwards. We'll just have to keep collecting clues to favor one bet over the other.

The target of both paths is the bottom of the broadening wedge . In my estimation, if this correction happens, this will be the bottommost point for TSLA onwards.

For the stop loss, you will have to keep watching this idea as I update it, because I can't decide a stop loss yet; except I would loosely say it's the descending trend line that price action will decide. We have to wait and see a bearish reversal signal such as a shooting star candle or a higher high in price coinciding with a lower high in RSI .

In conclusion, I have to make clear a few points:
  • I would never recommend shorting TSLA . TSLA has much much more room to the upside than it has to the downside. TSLA is much much more likely to see $2000 from here than it is to see $400. So shorting is a BAD idea.
  • This is merely a warning with the goal that you make sure you are not too leveraged, that you prepare mentally before a correction happens, that you do not panic if it does happen, and that you prepare to add to your position at the bottom. TSLA is a long term investment for the coming decade. It is not a trade.
  • This is one of those calls that I'm only publishing for fun and learning, and to entice thought and have some of your opinions. So please leave your opinion in the comments.
Comment:
The recent 13% correction changes a lot. It defines lows and strengthens support levels. More importantly, it completely cancels my idea of a major correction coming in February or March. I will have to make a new idea for TSLA, but in short, I see that TSLA will climb so much in the next two months that the next major drop will take us to $1135 at the top of the broadening wedge and likely somewhere in Arpil to June.

Comments

Great analysis! Missed the entire bull run by selling pre split. Now waiting for a correction to enter with retirement funds. This is definitely a stock that you buy and forget about for the next 5-10 years.
Reply
TechNerdOmar statman85
@statman85, don’t worry, you didn’t lose much. I almost missed it myself and I was a bit late to learn about the fundamentals. But it’s good to hear that you want to be a long term investor in this once in a lifetime opportunity. The best approach with TSLA is to buy the dips and to buy a fixed amount at fixed periods, like $300 every month, regardless of the price. I still can’t believe the dip I drew myself but it is possible and would be a golden opportunity to jump in or increase position. The point is will you really buy when everyone is scared to? :)
Reply
statman85 TechNerdOmar
@TechNerdOmar, Yes I will. I have a target price of $600. When it happens, I am buying.
+1 Reply
The only real impetus for such a retreat would be a massively disappointing 2021 delivery forecast, which seems really unlikely. Much more likely that they guide higher than expected, and this pushes north again.
Reply
TechNerdOmar HankMFRearden
@HankMFRearden, I agree that this is highly unlikely. I don’t agree that the ONLY impetus for such a drop is disappointing earnings. There could be a hundred reasons. I’m only looking at the chart. No fundamental analysis here. Tesla’s growth has been showing in the numbers every year for the past 5 years and yet we had drops of 30% or more for no obvious rational reason. The market is irrational, so it doesn’t work to try and predict insignificant moves like this based on fundamentals. What do you think?
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That's a massive fall. What would be the confirmation for that?
Reply
TechNerdOmar TheSignalyst
@TheSignalyst, by the time it gives us confirmation, it would already be too late. It would have already dropped 10%. And even that won’t make me confident enough that it’s going all the way down to $550. Reversal signals like RSI divergence are not gonna show before the first massive red candle. That’s how I see TSLA acting. Surprising everyone. Punishing greed. Rewarding long term holders.
On top of that, It’s very hard to call the right support level in such volatility. That’s why the best strategy is to dollar cost average and hold. ESPECIALLY with a stock as valuable as Tesla.
Reply
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