A head and shoulders pattern can be seen on the weekly time frame of Tesla shares, indicating that a long-term reversal of the rally might take place. Price is stalling at the neckline around the $220/share levels and may be due for a breakdown soon.
If that happens, price could confirm the downtrend, as this would also mean a break of support at the 50 simple moving average and the $200/share psychological level. From there, Tesla shares might fall to $100/share, which is the next support zone.
Tesla Shares Forecast
On the other hand, if the 50 SMA dynamic inflection point happens to hold as support, Tesla shares could bounce back to the top of the formation near $300/share. Further gains past this point would indicate that the long-term uptrend is still intact.
MACD is reflecting a buildup of selling pressure, which might take Tesla shares lower in the next few weeks. RSI is also indicating that sellers are in control, although the oscillator is almost in the oversold region already. Once it reaches that area, it could draw buyers back in and lead to a quick bounce in prices.
Bear in mind though that a bearish divergence appears to have formed, as Tesla shares recently made higher highs while the technical indicator drew lower highs. This could add confirmation that bearish momentum is taking hold.
However, the Santa Claus rally which usually lifts US equities at the end of the year throughout the first few weeks of the new year could lead to gains for Tesla stock. This might hinge on the Fed’s monetary policy bias though, as the inclination to start hiking rates early next year might mean that credit would become more expensive and potentially limit business expansion. A reiteration that rates would remain low for a considerable time could be enough to keep shares supported.
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