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How to Trade TSLA’s Volatility

Oct 07, 2017


Trading a volatile stock is never easy. It involves patience, and at the same time you need to be nimble and ready to move at any given moment.

Tesla (TSLA) is a perfect example of this. It is often moved by headlines as analysts and commentators obsess over the company and its CEO, Elon Musk. There is a true love-hate relationship here.

This past week I was at an investment conference, and TSLA was one of the more commonly-mentioned stocks. The bears are calling for it to fall by 50% due to slow auto sales and high costs. On the other hand, the bulls look for it to become one of the largest companies in the world thanks to increasing demand for battery storage.

I tend to find myself more in the bullish camp, as most analysts focus on electric vehicles rather than the changing energy sector, which is being led by TSLA’s battery storage.

A Helpful Chart

Tesla’s chart has been interesting recently, and it’s helped investors time great entry points over the last couple of months. Let’s take a look at what I’m talking about:

I’ve circled the area to buy above, which is right around price support at $340 (the black line). The last couple of times the stock fell to that level it bounced soon after. And also around the same time, the relative strength index (RSI, at the bottom of the chart) has given a bullish crossover buy signal. The last time this occurred was on Monday, when TSLA held support and the RSI crossed above 30 and out of oversold territory.

But what makes this stock so volatile is the fact that the shorts love to play it. If TSLA can run back up to $390, the shorts will likely be all over it. However, I’m not so sure they’ll succeed in pushing it back down this time given historical trends that indicate that stocks tend to run up to big round numbers once they get close.

If the current rally continues, I see the shares moving above their previous high and up to $400. That represents a good amount of upside, so use pullbacks to support and RSI crossovers as the most reliable buy signals.

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