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Technical Update - Tesla testing key support in bubble implosion scenario
Kim Cramer Larsson
Technical Analyst, Saxo Bank
Since Tesla shares took off back in 2020 the share price has formed a classic bubble formation. With shareholders having lost 50% since peak there could be more agony ahead.
Taking out key support around current level is likely to fuel another heavy sell-off to price levels not seen since 2020 i.e., 30-45% lower from here
Tesla is trading lower Pre-Market this morning currently 5% down an indicated opening around $211 which is close to the support at around 208. A support that was broken last week confirming the downtrend Tesla has been trading in since it broke below 265.
A down trend, illustrated by the falling wide channel lines i.e., lower highs and lower lows, that could take Tesla much lower.
A break below last week’s low at 204 is likely fuel another heavy sell-off. A sell-off that can take Tesla to test the strong support around 180.
For Tesla to reverse the medium-term down trend a close above 314.67 is needed.
Short-term a correction up to around 246 could be seen if Tesla closes above 229.82. RSI is showing negative sentiment on both daily and weekly supporting the view of lower price levels.
No divergence on daily RSI.
Looking at a monthly chart going back to when Tesla was listed on the Exchange Tesla is showing a clear Bubble pattern. During the bubble build-up there are at least one but sometimes two larger corrections called Bear traps or Pre-peaks.
When the price starts to decline i.e., when the bubble implodes the price always comes down to at least the last pre-peak low but quite often down to the first pre-peak.
Sometimes the price comes all the way down to the base level before prices really takes off - see Bubble chart at the end of this article. (During the Tech bubble implosion back in 2001-2003 Nasdaq dropped below its pre-peak low).
When the price starts to decline i.e., when the bubble implodes the price always comes down to at least the last pre-peak low but quite often down to the first pre-peak.
Sometimes the price comes all the way down to the base level before prices really takes off - see Bubble chart at the end of this article. (During the Tech bubble implosion back in 2001-2003 Nasdaq dropped below its pre-peak low).
All the signs of top and reversal were in place leading to the sell-off. RSI divergence warning about an imbalance and weakening of the uptrend, declining volume since mid-2020 and finally the Doji Evening top and reversal pattern.
Currently Tesla is trading close to the lows of the Pre-peak 2. If prices drop below the lows of that pre-peak/correction Tesla is likely to drop down into Pre-peak 1 area and test the Fibonacci 0.618 retracement of the all-time low and all-time high just below top of the pre-peak 1 area at 158.95.
Typical Bubble Pattern
Note: The author is holding a short position in Tesla
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