Holding Tesla shares? Here’s a technical view

Image Source: xalien, Shutterstock.com

Highlights

  • Tesla has been one of the most buzzing stocks in recent times.
  • The sudden acceleration of the momentum made the stock more volatile.
  • Elon Musk sold about US$6.9 billion worth of stocks last week.

Tesla is currently one of the most buzzing stocks on Wall Street. A recent sharp surge in Tesla shares has attracted the attention of everyone on the street. The price surge has bolstered the largest automaker’s market capitalisation to over a trillion dollars.

However, the stock has also corrected quickly from an all-time high of US$1,243.49, made on 4 November 2021. Increased trading activity has also been witnessed by the exchange’s reported volume, rising to above 60 million shares for a few days this month.    

So, what’s happening with Tesla shares 

One of investors’ favourite growth stocks, Tesla shares caught the attention of market participants when the company cracked a US$4billion deal with Hetrz, to supply 100,000 Tesla vehicles by the end of 2022. Hertz will make available half of the vehicles to Uber drivers under its expanded rental program.

Image Source: Refinitiv Eikon

Soon after the news, the stock had shifted gears and rallied relentlessly for the next few days. As can be seen from a Tesla chart below, the uptrend since July 2021 accelerated at October end with a gap opening as investors flocked to get their hands on the stock. The sudden acceleration of the momentum made the stock more volatile, as indicated by the expansion of Bollinger Bands®.

However, at the very top of 1,243.49, the stock became overbought as indicated by the Relative Strength Index (RSI), trading above the 70 level. Along with this, a bearish divergence has also been witnessed, which eventually resulted in a reversal of the upward momentum.

In Technical parlance, a bearish divergence formed in an overbought zone is quite a strong signal of a potential reversal, which eventually materialised in Tesla shares. Soon after reaching an all-time high, the shares fell drastically in the next few days. However, one reason for this sharp selling can majorly be attributed to the selling spree by Elon Musk.

Recently, in a Twitter poll, Musk asked Twitterati whether he should sell some of his Tesla holdings to realise gains and pay taxes, to which over 3 million people responded, the majority of which said “yes”. Hence, Musk sold about US$6.9 billion worth of stocks last week, resulting in a sudden supply, which eventually crashed Tesla shares 18.5% from an all-time high to the last closing price of US$1013.23 as of 15 November 2021.

Bottom Line

A sudden surge in momentum in Tesla shares amid the Hertz deal has made investors flock to the stock, which compounded the momentum. However, the bearish divergence on the daily chart at the top indicated a potential reversal in Tesla shares, which happened thereafter.

Whatever may be the reason, (Musk’s stake offloading in this case) following technical indicators such as becoming overbought, or a bearish divergence, would have warned investors at the very top to be cautious.

Read More: Twitterati say ‘yes’ to Elon Musk’s 10% stake sale in Tesla


 


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