Did Tesla Bears Fumble? $1,200 Could Be Next

Fast forward, and the bears, so far, fumbled, as the share price is now back above $625, its 50-day SMA and the downtrend line that has kept the April bounce high in check. See Figure 1A below.

I apologize for the busy chart, as I wanted to include the Ichimoku Cloud. It follows that when Tesla trades above the 50-day SMA and its “cloud,” the odds are of good things happening, i.e., higher prices, increases. Just look at the second half of 2020.

Figure 1. TSLA daily and weekly candlestick charts with EWP Count and technical indicators

The weekly chart in Figure 1B shows the recent correction even better, with a clear (black) a, b, c wave down. This pattern is called a zigzag correction in EWP terms because the b-wave (the bounce into April) only retraced 61.8% of the prior a-wave, comprising five smaller waves (red i, ii, iii, iv, v). Typically the c-wave is then equal to the length of wave-a, targeting the low $400s in this case. However, in this bull market, buyers can step in much earlier thanks, in part, to the tremendous extra liquidity the Fed provides with its “it’s not QE” fourth round of QE. Moreover, one can see how price has stalled twice at the blue 38.2% retrace of (blue) Primary wave-III. Again, this is a typical 4th wave level.

The technical indicators on the weekly chart are also starting to point back up, with some encouraging developments (black arrows on the RSI5 and FSTO). Thus, if the May low can hold, the bulls are in control, and the rally to $1,200 has started. The bears would want to see Tesla close back below “the cloud” and the 50-day SMA to tell us this correction is turning even more complex and pronounced because then the recent rally was only another b-wave.

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