Key Trendline Could Send EV Giant Back Up the Charts

Tesla could benefit from a shift in the options pits

Assistant Editor
Dec 15, 2021 at 2:03 PM
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Tesla Inc (NASDAQ:TSLA) notched a record high of $1,243.49 around the time the company joined the trillion-dollar club, but has pulled back in recent weeks. In fact, since that peak, the equity has taken a nearly 25% haircut. Despite its shaky performance on the charts of late, investors shouldn't swear off the stock just yet, as it has dipped to a key trendline with historically bullish implications.

Specifically, TSLA has come within one standard deviation of its 80-day moving average after of trading above the trendline since July. According to data from Schaeffer's Senior Quantitative Analyst Rocky White, at least four similar signals have occurred in the past three years. The equity enjoyed a positive return one month later in half of those instances, averaging a 12% gain. From the stock's current perch of $935, a similar move would put Tesla stock back over the $1,000 mark. Even better, the stock's 14-day Relative Strength Index (RSI) of 32 sits just on the cusp of "oversold" territory. This  indicator typically predates a short-term bounce. 

TSLA Chart Dec 15

Put buying is still all the rage, leaving ample room for a shift in sentiment amongst options traders, that could boost the shares higher. Data from the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) shows the security with a 10-day put/call volume ratio of 1.20, which ranks higher than all other readings in its annual range, meaning puts are being bought at their fastest rate in 12 months.

Tesla stock has tended to exceed options traders volatility expectations during the past year. This is per TSLA's Schaeffer's Volatility Scorecard (SVS), which ranks at a high 80 out of 100.

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