Tesla Inc. shares rose enough to test a key chart level on Wednesday, but then pulled back as the bulls failed to make any headway.
This failure means that the downtrend that has kept the bears in control for the past four months remains intact. At least for now, as there are some early signs that another test is imminent, and there’s a good chance the bulls will come through next time.
Shares of the electric car giant TSLA, -1.05% rose as much as 2.4% in morning trading to an intraday high of $252.75. At that high, bulls battled the declining trend line that started at the 10-month intraday high of $299.29 on 29 July and connected the highs of mid-September and early October.
But the bears won this battle and the bulls retreated. The metal slumped in afternoon trading to close down 1%.
According to Dow Theory, or market analysis, which has been relevant to Wall Street traders for more than a century, a trend remains intact until there is a clear reversal signal. And the clearest sign of a reversal is the break of a trend line.
Until Tesla shares can break above this four-month downtrend line, which extends to around $251.57 by the end of the week, the bears will remain in charge.
On the bright side, however, the bulls have already broken a downtrend line, suggesting they have momentum on their side.
The Relative Strength Index, which many chart watchers use to gauge momentum, has been trending lower since mid-June, even before Tesla’s share price peaked. Earlier this month, the RSI broke above the downtrend line to begin a new uptrend, suggesting there’s a good chance the share price will follow.
Keep in mind that the downtrend since July is short-term in nature, so even if the stock does break above the trendline, it will have to contend with a longer-term downtrend line just above it.
This line, which started at the all-time intraday high of $414.50 on 4 November 2021, currently extends to just above $273.
And while the short-term trend remains down, the bulls have made a lot of progress on the intermediate-term uptrend that began in early January.
Tesla shares are down 5.3% over the past three months, but are up 97.6% year to date. By comparison, the Nasdaq-100 index NDX is up 46.2% this year and the S&P 500 index SPX is up 18.6%.
