This year stocks of Tesla, a leading electric vehicles producer, hit new all-time highs at $1243. Now they are almost $300 less than that and you certainly are face with the question of whether you should buy these stocks now or not?
If we look at the weekly and monthly charts of Tesla stock prices, we may find that they started to rally in March 2020 after major central banks throughout the world started to pump liquidity to support the stalling economy. Visually we may divide this rally from $70.10 to $1243 on five waves, where three of them would be the upside waves and the two – correctional waves. So, we should expect three correctional waves A, B, C after this five-wave rise.We may consider that Tesla stocks have finished their five-wave rise and are now entering a correction cycle that could be described as
1 – the rise from $70.10 to $500.14 ($432.04)
Wave 2 – correction of 38.2%
Wave 3 – the rise from $329.88 to $900.40 (123.6% wave 1)
Wave 4 – correction of 50% forming a classic triangle pattern
Wave 5 – the rise from $539.49 to $1243 (161.8% of wave 1)
What if we do not consider correctional waves? This could be considered as only upside impulse waves during the rally are most significant. The longest wave is the fifth one with a classic five-waves structure layout, where the low of wave 4 was below the peak of wave 1 ($539.49>$502.14). Between the peaks at $900.40 and $1243 on the weekly chart are divergences of Stochastic and RSI indicators.The structure was formed within 19 months, so I think we would have a comparable in time ABC-wave correctional structure. And this may have two scenarios.
The first scenario suggests a correctional zigzag is close to its end with:
Wave A – decline from $1243 to $980.20 (38.2% to a previous wave 5)
Wave B – rebound by 76.4%
Wave C – decline from $1201.54 to $909.17 (wave C = wave A, with a wave C forming a “falling wedge” pattern with the resistance crossing $970-973. Once this resistance is broken the rise will resume). This scenario provides a classic retest of the previous peaks at $900.40.
The second scenario suggests that the price has passed only sub waves 1, 2 and 3 within wave A. Under this scenario we may have a temporary rise of prices in a form of sub wave 4 from 38.2% to 61.8% to the length of sub wave 3 followed by another decline. If sub wave 3 is over, we may see some rise of prices towards $1020-1090. After that a new five-wave structure could be formed to complete the A wave. The downside targets for sub wave 5 are likely within the $776.50-810 zone. Under this scenario prices would reach the moving average of EMA100 on the daily chart (around $800) and would hit the support of the upward trend that started in March 2020. It will also make wave A equal to 61.8% of wave 5.
If we are following this scenario then the ABC structure would require more time as Tesla stock prices are finishing wave A, and waves A and B would require an additional 2-3 months to be completed. Only then will prices reach to the attractive levels where buy opportunities could be considered.
So, in both scenarios a breakthrough of $970-973 levels could mean an upside spike to $1020-1090. If stock prices will rebound from $1070-1090 we may expect them to return to the support of the trend line of the trend that has started in March 2020, where Tesla stocks would be worth buying with the target at $1243 and above.
If we look at the weekly and monthly charts of Tesla stock prices, we may find that they started to rally in March 2020 after major central banks throughout the world started to pump liquidity to support the stalling economy. Visually we may divide this rally from $70.10 to $1243 on five waves, where three of them would be the upside waves and the two – correctional waves. So, we should expect three correctional waves A, B, C after this five-wave rise.We may consider that Tesla stocks have finished their five-wave rise and are now entering a correction cycle that could be described as
1 – the rise from $70.10 to $500.14 ($432.04)
Wave 2 – correction of 38.2%
Wave 3 – the rise from $329.88 to $900.40 (123.6% wave 1)
Wave 4 – correction of 50% forming a classic triangle pattern
Wave 5 – the rise from $539.49 to $1243 (161.8% of wave 1)
What if we do not consider correctional waves? This could be considered as only upside impulse waves during the rally are most significant. The longest wave is the fifth one with a classic five-waves structure layout, where the low of wave 4 was below the peak of wave 1 ($539.49>$502.14). Between the peaks at $900.40 and $1243 on the weekly chart are divergences of Stochastic and RSI indicators.The structure was formed within 19 months, so I think we would have a comparable in time ABC-wave correctional structure. And this may have two scenarios.
The first scenario suggests a correctional zigzag is close to its end with:
Wave A – decline from $1243 to $980.20 (38.2% to a previous wave 5)
Wave B – rebound by 76.4%
Wave C – decline from $1201.54 to $909.17 (wave C = wave A, with a wave C forming a “falling wedge” pattern with the resistance crossing $970-973. Once this resistance is broken the rise will resume). This scenario provides a classic retest of the previous peaks at $900.40.
The second scenario suggests that the price has passed only sub waves 1, 2 and 3 within wave A. Under this scenario we may have a temporary rise of prices in a form of sub wave 4 from 38.2% to 61.8% to the length of sub wave 3 followed by another decline. If sub wave 3 is over, we may see some rise of prices towards $1020-1090. After that a new five-wave structure could be formed to complete the A wave. The downside targets for sub wave 5 are likely within the $776.50-810 zone. Under this scenario prices would reach the moving average of EMA100 on the daily chart (around $800) and would hit the support of the upward trend that started in March 2020. It will also make wave A equal to 61.8% of wave 5.
If we are following this scenario then the ABC structure would require more time as Tesla stock prices are finishing wave A, and waves A and B would require an additional 2-3 months to be completed. Only then will prices reach to the attractive levels where buy opportunities could be considered.
So, in both scenarios a breakthrough of $970-973 levels could mean an upside spike to $1020-1090. If stock prices will rebound from $1070-1090 we may expect them to return to the support of the trend line of the trend that has started in March 2020, where Tesla stocks would be worth buying with the target at $1243 and above.
