Tesla Inc (TSLA) Stock: How “Model Y” Report Changed the Game

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Tesla Inc (NASDAQ: TSLA ) rallied close to 5% on Tuesday on the back of a report saying the electric vehicle maker is planning on yet another new car dubbed the "Model Y." While to my knowledge, Tesla has yet to confirm or deny these rumors, the positive reaction in TSLA stock must be respected.

From a technical analysis standpoint, Tesla stock bounced off important support that could offer traders and investors a good reference area around which to build their trades.

It was only three weeks ago, on Feb. 22, when Tesla reported its latest batch of earnings. In response, investors sold off TSLA stock with both hands.

Case in point? When I last mused about shares of Tesla on Feb. 24 (the day following the initial reaction to the company's earnings report), I said that while TSLA remains an attractive longer-term growth story, technically speaking, it had reached the upper end of a longer-standing trading range and looked poised for a breather. I also offered that a mean-reversion move lower toward the $240 area looked to be in the cards.

Just a few days later (Feb. 27), Tesla stock had reached its 50-day moving average near $242 - close enough to the $240 area, and enough to allow traders to take profits on any short positions.

Before looking closer into the technical meaning of Tuesday's bounce, let's review the bigger picture.

TSLA Stock Charts

Looking at the multiyear chart, we can see that despite selling pressure following the February earnings report and yesterday's bounce, Tesla shares remain largely in a well-defined yet wide trading range.

Click to Enlarge

My contacts on Wall Street capital markets trading desks continue to point toward another possible round of capital raise by Tesla Inc as a next event to look for - then depending on how investors react, potentially scale back into the stock at a better size.

As a former investment banker, I agree with my contacts that a capital raise would be a critical time to look at TSLA stock closely. Still, I have to also respect Tuesday's bounce.

On the daily chart, we see that Tuesday's rally in TSLA stock took place at a technical juncture that I often refer to as a "confluence area" of support.

Click to Enlarge

Note the simple black diagonal resistance line, which the stock pierced above in January. This line now coincides with the yellow 50-day simple moving average - a moving average that for the past 12 months had been a good reference area for the stock.

Through this lens, the pullback in TSLA shares over the past few weeks merely offered a retest of this former diagonal line of technical resistance. Now, following Tuesday's rally, this line may have become technical support.

While one day does not make a trend, the $240 area could now be used as a good reference area of support. Options players could consider selling out-of-the-money put spreads, which is a more conservative way to express an intermediate-term quasi-bullish view on the stock.

Quicker traders could consider buying TSLA stock for a trade and see if it offers any follow-through buying in coming days toward the $270 area as a next upside target.

Either way, the $240 area offers a good reference area for Tesla; if it breaks, then next support likely lies closer to the $220 area.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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