Tesla Technical Breakdown
Tesla has managed to bounce back very quickly after falling to a stock price below 400, they are now looking on track to reach levels seen to pre COVID-19 prices and has been a favorite for investors over the last few years. We’ll be looking at some technical details to try and better understand any underlying trends and what this might result in for the stock.
The Relative Strength Indicator (RSI) is a specific indicator that is used to detect if a stock is over sold or over bought. The RSI is calculated using average price gains and losses over a given period of time. The default time period is 14 periods with values bounded from 0 to 100. A reading of above 70 means the stock is overbought highlighting a bearish signal that the stock might fall in price. This is not the case with Tesla indicating that it might not necessarily be either overbought or oversold but as it is close to that 70 benchmark we can use this fact to build upon a better understanding of its current position.
The Bollinger bands are an additional indicator used in technical analysis to detect volatility if the bands are close together then there is considered to be low volatility however if the bands widen then there is considered to be high levels of volatility. Also it is very uncommon for a stock to move outside the Bollinger bands if it does, it will more often than not shift back inside the Bollinger band. As highlighted in the Graph above with Tesla we can see a move outside the Bollinger band and a widening of the Bollinger band indicating higher volatility and a possible decline in price to fall back inside the Bollinger band.
Coupled with a slight decrease in Volume as we can by the vertical bars underneath, this highlights that a smaller number of investors are buying the stock compared to before, with such a change in volume back to more normalized levels it is an indicator that the stock is settling down and is likely to experience less sharp changes in the price of the underlying stock.
The Moving Average Convergence (MACD) is a trend momentum indicator that shows the relationship in this case between the 12 day and 26 day moving averages. It is commonly used as a buy or sell signal and as it is in this case the MACD has crossed above the signal line indicating a buy signal.
With all this said it seems that the overall technical analysis of Tesla is inclusive and more fundamental analysis needs to be undertaken before it is clear in which direction Tesla will have, but from what we can see Tesla is currently very volatile and with that comes increased risks and with that comes increased potential gains. So subscribe to find out when we look at it further.