Technical Analysis (Tesla)
Technical Analysis (T/A) is the art or science (or both) of analyzing stock pricing charts with the goal of increasing the odds of predicting future price direction based on known historical repeatable patterns. It can apply to any time frame from minutes to decades, and from the market, a sector or individual stocks. It has progressed from hand drawn charts in the early days to the instant accessible charts we have at our fingertips these days.
The patterns range from simple and easy to see (example: a patten known as a “double top” which marks a term called “resistance”), and to more complex and tricky to see patterns
For a very long time, I have wanted to be able to describe a simple and easy to recognize example where the T/A methodology has really shined. That is the purpose of this document.
Background
The stock market is driven by:
- fundamentals, how successful or not is a company. Does the future look bright, are there threats to its success.
- news
- Emotions. Does the market love the company, or dislike the company ? Do you or your investment club love or dislike the company ? Does wall street ?
- If a stock tends to trend down and the Market feels negative about it, there is a tendency to sell.
- If a stock tends to trend up and the Market feels positive about it, there is a tendency to buy.
The market is the summary of all the possible drivers (fundamentals, news and emotions). If the trade is up at the close, that tells us that the combination of corporation, individual humans and computers are feeling good about the stock. Every possible interest and influence is represented in the chart.
CAN I PREDICT YOUR INNER FEELINGS ?
Please read the following two descriptions - twice. Imagine it is you.
A stock you like is trading at $20 and you buy some shares.
- the stock trends up to $21
- you love the stock.
- You might even buy more and tell your friends
Another stock you like is trading at $20 and you buy some shares
- the stock tends down to $19
- you dislike the stock
- you might sell or you might hold, but you are not a happy camper
Did you feel the joy with the first example and the pain in the second. Is this endorphins. Is it a buzz in your pleasure center ?
OK - to the market and a better example
Suppose there is a stock that wanders or drifts in a channel between $19 and $21 over time. Investors will have bought at different times, and their feelings will shift based on the price as seen in the above examples. They may buy or sell, but there it is guaranteed that investors hold the stock with various good or bad feelings, at any given time.
A T/A Trigger
Suppose after years, the stock trends to close the day at $21.01 which is a New All Time High (NATH). This is now a really well loved stock because without a doubt, EVERYBODY owns it at a profit. Except for the guy that bought at $21.01. The chart indicates the closing price for every day the stock has traded. It shows the emotional connection of everyone who currently owns the stock that participated in the channel.
So what role does T/A play in the above example. T/A gives us nice phrases to describe various patterns. In this case, the rule I have heard is …
The longer the base, the higher the space
A REAL EXAMPLE
A. Tesla stock price (blue line) was range bound from $1.30 to $2.50 for about 2.5 years. In May, 2013, it broke to a NATH of $3.60 and then settled into a range from $8.50 to $23.50. Buying after the NATH was a good thing. Observe the trading volumes (the green and red bars, signifying interest in the stock) which increased from 10 to 20 million shares before the NATH to 40 to 230 million stocks per day. These volumes were maintained in. the B example below.
B. Tesla stock was range bound from $8.30 to $23.50 for almost 7 years. In December, 2019, it broke to a NATH of $28 and then rose to $44, then $166, $264 and finally peaking at $380. Buying after the NATH at $28 was a good thing. Note that the base was much larger, and the rise (space) was much taller, the core theme of the pattern.
This is an easy example. T/A, like many things, can become much more complex and nuanced and many more indicators are available to help refine your choices. Whether you want to use the easy to see basic patterns or the more complex indicators, T/A can be a valuable tool to add to your investment toolset. Please do your own homework on technicals, if you chose to dip your toes. Nothing in the stock market is guaranteed.
Technical Analysis (T/A) is the art or science (or both) of analyzing stock pricing charts with the goal of increasing the odds of predicting future price direction based on known historical repeatable patterns. It can apply to any time frame from minutes to decades, and from the market, a sector or individual stocks. It has progressed from hand drawn charts in the early days to the instant accessible charts we have at our fingertips these days.
The patterns range from simple and easy to see (example: a patten known as a “double top” which marks a term called “resistance”), and to more complex and tricky to see patterns
For a very long time, I have wanted to be able to describe a simple and easy to recognize example where the T/A methodology has really shined. That is the purpose of this document.
Background
The stock market is driven by:
- fundamentals, how successful or not is a company. Does the future look bright, are there threats to its success.
- news
- Emotions. Does the market love the company, or dislike the company ? Do you or your investment club love or dislike the company ? Does wall street ?
- If a stock tends to trend down and the Market feels negative about it, there is a tendency to sell.
- If a stock tends to trend up and the Market feels positive about it, there is a tendency to buy.
The market is the summary of all the possible drivers (fundamentals, news and emotions). If the trade is up at the close, that tells us that the combination of corporation, individual humans and computers are feeling good about the stock. Every possible interest and influence is represented in the chart.
CAN I PREDICT YOUR INNER FEELINGS ?
Please read the following two descriptions - twice. Imagine it is you.
A stock you like is trading at $20 and you buy some shares.
- the stock trends up to $21
- you love the stock.
- You might even buy more and tell your friends
Another stock you like is trading at $20 and you buy some shares
- the stock tends down to $19
- you dislike the stock
- you might sell or you might hold, but you are not a happy camper
Did you feel the joy with the first example and the pain in the second. Is this endorphins. Is it a buzz in your pleasure center ?
OK - to the market and a better example
Suppose there is a stock that wanders or drifts in a channel between $19 and $21 over time. Investors will have bought at different times, and their feelings will shift based on the price as seen in the above examples. They may buy or sell, but there it is guaranteed that investors hold the stock with various good or bad feelings, at any given time.
A T/A Trigger
Suppose after years, the stock trends to close the day at $21.01 which is a New All Time High (NATH). This is now a really well loved stock because without a doubt, EVERYBODY owns it at a profit. Except for the guy that bought at $21.01. The chart indicates the closing price for every day the stock has traded. It shows the emotional connection of everyone who currently owns the stock that participated in the channel.
So what role does T/A play in the above example. T/A gives us nice phrases to describe various patterns. In this case, the rule I have heard is …
The longer the base, the higher the space
- In other words, if a stock trades in a narrow horizontal channel for a long time, perhaps even years, and then trades to a NATH, then there is a strong likelihood that the stock is entering a period of higher volume buying and strong upwards price movement. Why ?
- a lot of emotional connection to the stock by the owners, who now all love the stock (and may buy more)
- previous owners, who have left the scene, may just come back
- the news coverage may recognize the NATH and the talking heads will try to explain why
- there may be good business results in the past that have gone unnoticed. With the NATH, these may be discussed.
- computer programs may see the break out and trigger buying
- FOMO may also trigger increase purchases
- if the stock does surge, that is a news story and that may trigger more buying
A REAL EXAMPLE
A. Tesla stock price (blue line) was range bound from $1.30 to $2.50 for about 2.5 years. In May, 2013, it broke to a NATH of $3.60 and then settled into a range from $8.50 to $23.50. Buying after the NATH was a good thing. Observe the trading volumes (the green and red bars, signifying interest in the stock) which increased from 10 to 20 million shares before the NATH to 40 to 230 million stocks per day. These volumes were maintained in. the B example below.
B. Tesla stock was range bound from $8.30 to $23.50 for almost 7 years. In December, 2019, it broke to a NATH of $28 and then rose to $44, then $166, $264 and finally peaking at $380. Buying after the NATH at $28 was a good thing. Note that the base was much larger, and the rise (space) was much taller, the core theme of the pattern.
This is an easy example. T/A, like many things, can become much more complex and nuanced and many more indicators are available to help refine your choices. Whether you want to use the easy to see basic patterns or the more complex indicators, T/A can be a valuable tool to add to your investment toolset. Please do your own homework on technicals, if you chose to dip your toes. Nothing in the stock market is guaranteed.
