Bears are warning that Tesla Inc (NASDAQ:TSLA) stock is about to fall off a cliff, even more so now because of what they’re seeing on its stock chart, but the rocket ride continued on Monday and Tuesday as shares rallied on reports that Model 3 production may finally be ramping up. So does the Tesla stock death cross mean that doom will arrive by the end of the year?
Tesla stock rallies on Monday
Chart technicians started sounding the alarm on Tesla stock late last week, and the alarm bells continued on Monday, even as it rallied toward its highest level in about six weeks. The stock topped two key moving averages after weeks of sluggishness, forming what chart technicians call a “death cross.”
The two averages surpassed by Tesla stock are the 50-day and 200-day moving averages. The Street warned on Friday that the stock was about to form this bearish chart pattern, and then Monday’s rally was enough to push it into the bearish cross pattern. FactSet data indicated that the 50-day moving average declined to $325.59 as the 200-day average climbed to $325.36, which forms the cross.
Marathon Partners Equity Management, the equity long/short hedge fund founded in 1997, added 8.03% in the second quarter of 2021. Q2 2021 hedge fund letters, conferences and more According to a copy of the hedge fund's second-quarter investor update, which ValueWalk has been able to review, the firm returned 3.24% net in April, 0.12% in Read More
Some analysts dismissed the concerns about a Tesla stock death cross, saying that it occurs because of the price action over the medium term, while others say that history shows that this chart pattern is a signal that the stock is about to plunge.
Tesla stock death cross and golden cross
Tesla stock soared by roughly 4% on Monday and then closed at its highest price since October 31. The ride continued on Tuesday with another 2.5% gain in early trading. MarketWatch notes that Monday did indeed bring about the dreaded Tesla stock death cross, as it was the first time the shares closed higher than their 200-day moving average since November 1. Monday also marked the first time Tesla stock closed above its 50-day average since October 18.
A so-called “death cross” is formed when the 200-day and 50-day moving averages cross each other. Tesla stock has been range-bound between these two averages with support at about $298 and resistance at about $315.
If there is one, the opposite of the death cross would be a “golden cross,” which Tesla’s stock chart formed in February when the 50-day and 200-day simple moving averages crossed over each other. A golden cross is generally a bullish signal, according to chart technicians, and Tesla stock did follow the pattern by soaring up, up and away for most of the year.
Why a Tesla stock death cross might not spell trouble
MarketWatch argued that the Tesla death cross might not be a concern because such technical signals don’t always do a good job at helping investors time the market. Although chart technicians espouse them as very predictable indicators, they are often subject to telegraphing, and the news outlet said that they “don’t have a great success rate.”
For example, there was another Tesla stock death cross on July 7, 2016, but the shares shrugged that off and proceeded on to form a golden cross a couple of weeks later. The EV maker’s stock also bucked the trend on that golden cross as well, peaking a week after and then turning lower rather than continuing the signaled bullish trend.
On the other hand, there was also a Tesla stock death cross on November 16, 2015. The shares soared for about two weeks before cratering, so this week’s rally doesn’t mean they’re in the clear yet. In fact, this recent rally calls to mind an analyst report suggesting that the stock was heading for $400 ahead of a massive dive. As always, volatility is the name of the game when it comes to Tesla.