Tesla Motors Inc (NASDAQ: TSLA)

Tesla Motors, Inc. designs, develops, manufactures, and sells electric vehicles and electric vehicle powertrain components. The company also provides services for the development of electric powertrain systems and components, and sells electric vehicle powertrain components to other automotive manufacturers. It markets and sells its vehicles through Tesla stores and galleries, as well as over the Internet. The company operates a network of 80 stores and galleries in North America, Europe, and Asia.

Take a look at the 1-year chart of Tesla (Nasdaq: TSLA) below with my added notations:

1-year chart of Tesla (Nasdaq: TSLA)

Over the last 5 months TSLA has created a key level of support at $220 (blue), which was also a prior resistance, and that level was also the “neckline” support for the stock’s head and shoulders (H&S) reversal pattern. Above the neckline you will notice the H&S pattern itself (red).

Remember, patterns such as an H&S need to confirm to have the meaning that they imply. Confirmation of the H&S occurred when TSLA broke below its $220 support.

The Tale of the Tape: TSLA has confirmed a head & shoulders pattern. A short trade could be entered anywhere near $220 with a stop placed above that level. A break back above $220 could negate the forecast for a move lower, thus a long position could be considered instead.

Before making any trading decision, decide which side of the trade you believe gives you the highest probability of success. Do you prefer the short side of the market, long side, or do you want to be in the market at all? If you haven’t thought about it, review the overall indices themselves. For example, take a look at the S&P 500. Is it trending higher or lower? Has it recently broken through a key resistance or support level? Making these decisions ahead of time will help you decide which side of the trade you believe gives you the best opportunities.

No matter what your strategy or when you decide to enter, always remember to use protective stops and you’ll be around for the next trade. Capital preservation is always key!

Good luck!

Christian Tharp, CMT

Follow me on Twitter: @cmtstockcoach