Primary Chart: TSLA on Weekly Time Frame with a Downtrend Line from the All-Time High and Fibonacci and Measured-Move Levels

Preliminary Comments

TSLA is poised to stall soon, perhaps into July 21. By definition, a stall does not necessitate a crash or major trend reversal (at the primary degree of trend). A major reversal downward (crash) is always possible especially once shorts have been decimated—major downward reversals seem to always wait for clearing out of hedging and shorts, right?

Although a major trend reversal could occur here given major resistance levels just overhead on higher time frames, no one has a crystal ball. Finding the time and price components of such a major reversal can be exceedingly difficult (note the conclusion section of this article about probabilities).

And no one who were to have a crystal ball that worked properly would share it. And a securities regulator would be sniffing around for insider trading for sure with too many trades lining up too perfectly especially before major news catalysts. Humor aside, trying to be too clever by calling the exact top is a misplaced endeavor. But it can be prudent to analyze the charts and consider the idea of vulnerability for a trend’s continuation in the short-to-intermediate term, i.e., whether the move might encounter major resistance that could at a minimum cause a mean reversion or retracement of the recent rally.

Trend Analysis

The charts don’t lie. TSLA’s intermediate-term trend since January 6, 2023 remains upward. Similarly, short-term (2-6 weeks) and intraday trends remain upward. But the primary trend is still arguably sideways when considered over a 2-3 year period, while the secular trend since 2010 arguably still remains firmly upward.

1. Secular trend (since 2010): uptrend
2. Primary trend (since 2020/2021): sideways trend (range)
3. Intermediate / secondary trend (since early 2023): uptrend
4. short-term trend: uptrend near crucial resistance
5. intraday trends: uptrend near crucial resistance

Supplementary Chart A: Primary Trend

Supplementary Chart B: Secular Trend

The intermediate term trend has run fast and furious for 1H 2023 (since the Jan. 6, 2023 low). That alone is not enough to expect a reversal. Shorting something merely because it seems to have risen too far is a well-known trading mistake comparable to catching a falling knife in a downtrend. Shorting powerful uptrends is not an easy way to make a living.

But several charts suggest vulnerability for TSLA’s rally at this level. This comes right as earning will be reported this week along with a major monthly options expiration on July 21. Earnings reports like TSLA's upcoming one present a binary risk event that could stretch prices significantly in either direction, or it could a whipsaw price in both directions before settling on a final directional move (see the section below titled “Trend vs. Fundamentals.”)

Supplementary Chart C shows that TSLA’s price is nearing a crucial Fibonacci level on a linear chart. This is the 61.8% Fibonacci retracement ($299.05) of its entire decline from its all-time high into the early January 2023 low. Coincidentally, this level shows confluence with other important resistance levels shown on the chart such as the down trendline from the all-time high. (Some prefer Fibonacci levels adjusted for a logarithmic chart, which is not shown. The next relevant upside Fibonacci level on a log chart, however, is the .786 of the entire decline at $306, which is not far from the .618 level at 295.05.

Supplementary Chart C

If the .618 Fibonacci retracement is overcome and held (not just a false breakout), this suggests prices may run higher to at least $314.67 or the next higher Fibonacci level at $347. But these are upside levels conditioned solely on the .618 retracement being overcome and held.

Next, consider the down trendline from TSLA's all-time high. This is being approached at around $300, right were significant call OI exists. Trendlines can be somewhat rigid measures of trend, but they can provide some value especially when other support / resistance levels coincide with the trendline. The down trendline from TSLA's all-time high runs right into the measured-move zone, shown by the blue circle on Supplementary Chart D.1.

Supplementary Chart D.1

Some traders prefer to look only at logarithmic charts, though here it doesn't add much to the technical picture since the trendline is quite close to where it lies on the linear chart.

Supplementary Chart D.2

Finally, some bearish divergences in momentum and price/volume indicators suggest that price has become quite stretched right at a time when TSLA has reached some major resistance levels. Supplementary Chart E shows the Elder Force Index (EFI), a useful indicator that displays a combination of volume and price, weighing the extent of each price change along with the extent of volume. It tends to pick up divergences in the "force" or commitment behind a move with more sensitivity than RSI or other common momentum indicators, but with increased sensitivity often comes more noise (more false signals) which can be helped to some extent through indicator adjustment. Nevertheless, here is what that indicator shows for TSLA on the daily timeframe:

Supplementary Chart E

As TSLA has made higher highs, it has done so with less force and commitment for each high, creating a divergence between higher price highs and lower EFI highs. TSLA may make a new YTD high this week, and if so, it will be important to see where the EFI high prints for that new high. Given how low EFI is currently, it would take a lot of volume and price change to move the high to exceed the prior EFIs (erasing the divergence). In SquishTrade's view, EFI is unlikely to erase both the June EFI high and the January EFI high even if TSLA runs to $300-$320 post earnings.

Supplementary Chart F shows RSI and ROC, two common momentum indicators which most readers understand well. ROC shows a series of three highs that each make a successively lower high while price made higher highs at the same time: January 2023, June 2023, and July 2023. RSI only shows a series of two highs where price made a higher high and RSI made a lower high.

Supplementary Chart F

Downside Targets

TSLA's price seems poised to pullback / retrace at a minimum. But referring to downside targets may seem a bit premature as price hasn't confirmed even a short-term reversal or the start of a retracement / consolidation within the intermediate trend yet. The technical conditions for a retracement are present, so if confirmation lower does occur in the next week or so, price can fall to trend support, however one decides to measure that within one's trading system.

Based on persistently and deeply inverted yield curves, many astute market players may be looking for more than just a retracement or consolidation within the intermediate uptrend. They want more than mean reversion, and that is understandable. Should TSLA followers expect that now? Today, July 15, 2023, confidence cannot exist about an impending trend reversal on higher time frames. Why? A major reversal where price retests / breaks January 2023 lows will likely coincide with recessionary economic data (e.g., rising UE rates), drastically changing EPS estimates based on disappointing earnings reports, and/or unexpectedly high interest rates across the curve because of sticky inflation won't budge further downward (the recent CPI print came in at 3% for headline but 4.8% for core for June 2023). Note: Fundamentals are discussed in greater depth in the next section below. But economic data has continued to come in better than expected. Recent real GDP print for Q1 2023 was recently raised to 2% and labor markets remain persistently tight as the Fed even has noted in its recent pressers. Inflation has cooled for June but this may result from basing effects.

Most importantly, trend structure on the weekly and daily time frames (intermediate and short-term) has not been broken. Until the intermediate trend structure is decisively broken, forecasting a major top / trend reversal is rash and unfounded from a technical viewpoint. This intermediate-term trend structure is the up trendline from January 2023 lows or some other more dynamic or flexible measures of trend.

So with the idea that price can run a bit higher before any retracement—since we haven't yet seen a confirmation lower yet—these downside targets remain conditioned on a short-term trend reversal. For now, the targets also must be considered corrective retracements / mean-reversion targets within the context of the current trend until the evidence proves otherwise.

Conservative Target: $245-$250
Moderate Target: $232-$238
Aggressive Target: $199-$218

Trends vs. Fundamentals

A purely technical analyst or technically oriented trend trader tends to consider only the trend and technical evidence supporting that objective. At critical junctures after retracements / corrective moves, this means favoring trend continuation rather than a reversal until the evidence says otherwise. And pure trend following means seeing the odds as favoring mean reversion when a trend gets too extended or stretched rather than reversal.

Ambiguity as to trend on varying time frames often confounds the discussion of trends. This is why it's important to remain precise and focused on time frames. For example, a long term secular trend in a given index can be upward while a primary trend can be downward or sideways (retracing / consolidating within the secular uptrend) while an intermediate trend can be upward (retracing or consolidating the primary downtrend)—and intraday traders levered up on calls and riding the short-term rip may be so hyperfocused on a rip in the short term that they dismiss a long-term analyst’s accurate characterization of corrective rally within a primary downtrend. This is just a hypothetical example of how vagueness around terminology and time frames doesn’t can obfuscate the proper technical approach to a given security.

As discussed, TSLA’s trend right now is upward on the intermediate trend and minor (short-term) trends. But the primary trend is still arguably sideways when considered from 2-3 years ago. And the secular trend since 2010 arguably still remains upward.

But may a trend trader peek outside the trend? That is a complicated question without a definite answer. For those wanting to explore whether it’s prudent to look at non-technical evidence outside the scope of the trend (e.g., considering the fundamentals and the broader macro), the following post offers some cost-benefit analysis and suggestions:

For those who wish to avoid being influenced by fundamental information, please skip this paragraph and read on to the next one. Andrew Dickson, the founder of Albert Bridge Capital and CIO of Alpha Europe Funds recently noted the following incongruities (downtrends) in EPS-estimate trends vs. price trends:
1. In late 2022, TSLA’s sell-side analysts expected $6.34 EPS in 2023 (about 9 months ago estimates).
2. After TSLA reported delivery numbers in early July, Dickson noted that “despite today's apparent 4% rev beat (implied from delivery-numbers) for Q2, 2023 EPS expectations have plummeted to $3.50. So earnings expectations for TSLA are now down -55% in 9 months and yet the stock is up +15%.”
3. He concluded that "the 2023 P/E multiple has expanded from 38x to 79x, or by 107%."

Dickson’s comments show that price is often not driven by fundamentals. Exactly what was priced in when the stock plummeted to $100 in January? And what is different now has nearly doubled off the lows? Or maybe the question is whether the data that gets priced in has different (and ever changing) weightings depending on the type of data. For example, maybe the data that affects price is most heavily weighted toward liquidity, capital flows, sentiment, seasonality, rather than fundamentals. But David Lundgren, a combined technical and fundamental analyst for whom SquishTrade has utmost respect, highly regards technical analysis, and especially favors technicals in the short / intermediate term, but says that fundamentals always matter in the long run. Here is a quotation from Lundgren from notes I've taken on his commentary in interviews and articles: "In the long-term, actual fundamentals will simply overwhelm any short-term technicals, emotions, sentiments driving a security or market price action."

Concluding Comments

Traders think in terms of probabilities, not certainties. Further, traders' time frames, risk management, and position sizes vary dramatically, which is why it seems imprudent to blindly follow another person’s signal service (whether paid or free). One very knowledgeable TV follower of mine has shorted TSLA with a position size that gives him a sizable margin of error. In other words, he can wait and allow significant fluctuations in price before getting shaken out of the position. My inference from our conversations is that his short thesis is based on deeply and persistently inverted yield curves, volatility being at major lows, deteriorating fundamentals at TSLA and other broader macro problems.

But macro and fundamentals can take a great deal of time to unfold, i.e., they do not play out immediately, and if they did, the big short should have been weeks or months ago. This year everyone thought a recession would be here by now, including experts with long-term experience managing or advising multi-billion dollar funds. This does not mean my fellow trader must be wrong. His thesis might yet succeed with time and patience, or it may yet experience more pressure or even be stopped out. This is why position size, risk management, and time frames matter. Before entering a trade or investment, one must consider time frame, position size, risk tolerance, risk management, technical or fundamental evidence, and an invalidation or stop level (which defines risk and relates integrally to position size). Shorter-term traders with leveraged, derivative, or supersized short positions would have already gotten crushed trying to short TSLA or other mega cap leaders the last few weeks or months.