Tesla (NASDAQ:TSLA) shares took a severe hit early in the week, retreating to $987 from last week’s peak levels at the start of trading on Wednesday. The price later rebounded to $1067, but the stock treads on thin ice after it lost 20% from the peak.
A consolidation below the $994 level would be an informal start to the bear market, paving the way for a deeper correction in one of the most talked-about stocks.
Historically, the onset of a bear market is followed by a further decline of another 20%. The Tesla stock followed a similar pattern earlier this year. The stock price nosedived from the peak of $900 at the end of January, finding solid support near $540 (-40%).
The 200-day moving average acted as solid support from May to August. The October-November acceleration was overheated and needed a correction, but it wasn’t easy to anticipate it would be so rapid and steep.
A close below $994 would start a technical bear market, paving the way for a drop to $745. Once again, this could coincide with the level of the 200-day moving average, which now passes through $728 but is pointing upwards.
The rally is getting weaker and weaker along with the price rise, as shown by the series of declining RSI peaks on the weekly charts from 2020 on rising prices. Such divergence suggests the possibility of a deeper drawdown than the bear market pattern suggests.
If Tesla stock does not get support on the downside to 994 today-tomorrow and at 745 at the start of the bear market, we could be talking about a free fall towards the $200-250 area.
Most worryingly, Tesla stock often acts as a risk demand indicator for the retail investor crowd, foreshadowing tough times for the NASDAQ and S&P 500 indices.