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Tesla: Prepare For Congestion On The Daily Chart

Published 11/16/2021, 06:29 AM
Updated 07/09/2023, 06:31 AM

The daily chart for Tesla (NASDAQ:TSLA) makes interesting reading at present and despite the volatility generally associated with this stock we may be entering a period of congestion over the next few days as the stock consolidates in the $1000 per share area.

For intraday traders little changes as there are always opportunities to trade both sides, but for longer-term investors, it may be a question of being patient as we wait for the next leg to develop. And the reason for this is twofold.

Tesla Congstion Daily Chart

First, the dramatic widespread down candle which triggered the correction and which I explained in my previous post on Tesla from a volume price analysis perspective triggered the volatility indicator on the NinjaTrader platform. Even for a stock such as this, triggers on the daily chart are relatively uncommon. although in the rapid ramping up of the price prior to the fall, we saw three such events.

So what does the indicator signal? The indicator works on average true range assessing whether the price action is outside this range and if so, the indicator is then triggered. What follows thereafter is either a reversal in price or at least congestion within the spread of the candle. The reason for this is simple to understand when viewed from the perspective of the market makers.

Volatility to the upside is used as a mechanism to generate FOMO – the fear of missing out. A fast-moving price generates this response and traders and investors duly jump in, only to be trapped in the consequent move, and are either taken out on their stops, or they close out as the emotional squeeze of congestion follows. Either way, it is an extremely profitable tactic – for them.

For Tesla, the volatility trigger has resulted in buy orders being triggered at the $1k level (the pull of round numbers) but the push higher has stalled with the price returning to this level and move sideways.

Second, we are now trading at the VPOC as denoted with the yellow dashed line, and as such, this is now the fulcrum for this stock having jumped from the $700 region (see my previous post). This is where we now have price agreement. In other words, the bulls and bears are equally weighted and are in a tug of war and there is no bias, long or short, and a further reason to expect congestion at this level.

Yesterday, we saw the price dip and recover on good volume as the buyers moved back in to pick up the stock on the expectation of a recovery following the sharp sell-off, and in terms of the longer-term direction, the key levels are as follows. $1100 per share to the upside where we have a low volume node which should see the stock move to $1150 with relative ease, whilst to the downside, it is $940 per share where potential volume-based support falls away rapidly and if taken out, the price may accelerate through to $800 where deeper support awaits.

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