Tesla, Inc was rising over 4 percent on Monday in reaction to a bull flag pattern, which the stock had developed on the daily chart.
The bull flag pattern is created with a sharp rise higher forming the pole, which is then followed by a consolidation pattern that brings the stock lower between a channel with parallel lines.
For bearish traders, the “trend is your friend” (until it’s not) and the stock may continue downwards within the following channel for a short period of time. Aggressive traders may decide to short the stock at the upper trendline and exit the trade at the lower trendline.
Bullish traders will want to watch for a break up from the upper descending trendline of the flag formation, on high volume, for an entry. When a stock breaks up from a bull flag pattern, the measured move higher is equal to the length of the pole and should be added to the lowest price within the flag.
A bull flag is negated when a stock closes a trading day below the lower trendline of the flag pattern or if the flag falls more than 50 percent down the length of the pole.
The Tesla Chart
Tesla reversed course into an uptrend on March 15 and between that date and March 29, the stock shot up 47 percent higher, which created the pole of the pattern. Tesla then consolidated slightly lower over the three trading days that followed before breaking up from the flag on Monday.
The break up from the flag came on higher volume, which confirms the pattern was recognized. Bullish traders will want to watch for increasing volume on Tuesday, which would indicate there is momentum for continuation.
The measured move of the pattern is about 47 percent, which indicates Tesla could trade up toward the $1,530 mark.
Tesla is also trading in an uptrend pattern, with the most recent higher low created on Friday $1,066.64 level, and the most recent higher high formed on Monday when the stock surpassed the March 30 high of $1,113.95. Eventually, the stock will need to trade lower to form its next lower high, which could give bullish traders who are not already in a position a solid entry.
If Tesla closes the trading day near its high-of-day, it will print a bullish Marubozu candlestick, which could indicate higher prices will come again on Tuesday. The second more likely scenario is that the stock prints an inside bar pattern, which would lean bullish.
Tesla has resistance above at $1,152.62 and the $1,200 level and support below at $1,115.60 and $1,075.02.
By Melanie Schaffer
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