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Key Takeaways
- Tesla shares tumbled in extended trading Tuesday after the EV maker posted a 45% drop in second-quarter profit, reported a reduction in the average selling price of its vehicles from a year earlier, and cautioned about a rise in AI costs.
- Despite bullish technicals, Tesla shares sit poised to change gear after the company’s weaker-than-expected quarterly results.
- Amid post-earnings selling, the stock could attract buying interest at key chart levels including $220 and $198.
- if Tesla shares resume their uptrend, the measuring principle projects a price target of $360.
Tesla (TSLA) shares tumbled nearly 8% in extended trading Tuesday after the electric vehicle maker posted a 45% drop in second-quarter profit, reported a reduction in the average selling price of its vehicles from a year earlier, and cautioned about a rise in artificial intelligence (AI) costs.
Below, we review Tesla’s chart and use technical analysis to identify important levels to watch out for post earnings.
Earnings Hits Brakes on Bullish Techincals
Since carving out an inverse head and shoulders pattern between February and June, Tesla shares have continued to trend higher, with the price breaking above a key multi-month downtrend line earlier this month. Importantly, the rally has occurred on above-average trading volume, suggesting participation by institutional investors.
More recently, the EV maker’s stock price has coiled within a pennant, a chart pattern consisting of two converging trendlines following an impulsive move that indicates a continuation of the current uptrend. It’s also worth pointing out that the 50-day moving average (MA) sits poised to cross back above the 200-day MA to generate a golden cross pattern, which technical analysts interpret as marking the start of a new move higher.
However, despite the bullish technicals, the EV maker’s share price looks set to change gear after its weaker-than-expected quarterly earnings report.
Monitor These Levels Amid Post-Earnings Selling
Amid post-earnings selling, investors should watch two key areas on the chart where Tesla shares could attract buying interest.
The first sits at $220, a level where buyers may seek entry points near the multi-month downtrend line that connects several swing highs that formed between July and December last year.
Follow-through selling could see a deeper retracement to around $198, where the price encounters support from a horizontal line linking the October swing low and neckline of the inverse head and shoulders pattern.
Watch This Price Target if Uptrend Resumes
If Tesla shares resume their uptrend, investors can use the measuring principle, sometimes referred to as a measured move, to project an upside price target.
To do this, we calculate the distance of the uptrend that preceded the pennant in points and add that amount to the pattern’s top trendline. For instance, we add $100 to $260, which forecasts a price target of $360.
Tesla shares fell 7.8% to $227.23 in after-hours trading.
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