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Chart of the Day: Tesla Motors Breaks Out

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The question is whether there's a good trade in TSLA going forward.

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Tesla Motors (NASDAQ:TSLA) Model S sales exceeded expectations, and Tesla reported that it actually expects a first quarter profit this morning. The news sent TSLA up more than 20% at one point today, and it's still up 18% as I write.

I actually had a bullish trade structure on TSLA that I took off last month for a profit when the stock stalled near the $40 resistance level. My profit was nothing compared to what I would have made if I still held the trade today. But hindsight is 20/20. The stock could have been down 20% today and my options would be worthless.

Leaving the past in the past, what's more important is whether there is a good trade in TSLA going forward.

Here's the lifetime chart:


Lifetime daily chart of TSLA, Courtesy of Bloomberg

The $40 level (annotated with a red line) was resistance in 2012 and 2013, and it gapped through that resistance level today, on its largest volume since the stock's IPO (lower panel). I anticipate that $40 will be important support going forward, as all of those who missed out on buying the breakout will look for an entry in the 40-41 level. For now, the stock is in uncharted territory, and with out reference points, I have little inclination to initiate a new trade. But if the stock does offer a pullback opportunity to near breakout support, I'll be ready to put on another bullish TSLA trade.

This item by Enis Taner was originally published on RiskReversal.com.

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No positions in stocks mentioned.
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