Tesla Inc. (TSLA) stock was hit hard in the past year, dropping 75% from its late 2021 high of $414.50 to start off 2023 at a disappointing low of $101.81.
However, Tesla’s remarkably quick turnaround so far in 2023 has sparked discussion amongst analysts. Between January 6 and January 27, the stock rallied 74%, an especially impressive move for a company of Tesla’s size. In just the last week, there was a 33% rally.
So the question on everyone’s minds is, is the rally over… or just getting started?
An analyst from SafeTradeBinaryOptions.com commented, “The volume on Tesla stock has been ramping up. On January 27, 300 million shares changed hands. Volume moving up to 300 million and above has been very good for the stock over the last couple of years. Tesla shares have continued to rally after these strong volume surges.”
The incidents of when the volume has increased to over 300 million shares have been marked on the chart below (except for the COVID scare when stocks were in free-fall).
Chart Source: TradingView
The volume increase on the price rally is encouraging.
That said, nothing shoots straight up for long. A pullback is likely to occur.
The recent sharp decline followed by a strong rally has happened before and provides insight into how the coming pullback is likely to unfold.
In March and April of 2020, the stock advanced 60% and then experienced a 20% pullback.
In June through August 2019, the stock rallied 50% and then had a 20% pullback.
The SafeTradeBinaryOptions analysts further added, “We don’t know when this rally will end, but when the price starts falling, a 20% pullback is a reasonable theory.”
For example, Tesla reached a high of $180.68 on January 27. If the price were to drop from there, a 20% pullback puts the stock near $145 to $144.
For those looking to buy, consider waiting for a pullback, and then entering once the price starts rallying for a few days. Control risk by placing a stop loss order below the recent low, or 5% to 8% below the purchase price.
How far is the price likely to rally after the 20% pullback? History may give us some indications.
In 2020 the stock rallied 95% off the pullback low before it experienced another 20% pullback.
In 2019, it rallied 359% before a significant (20%) pullback.
If history repeats, that’s an attractive risk/reward ratio: risking 5% to 8% to make 90% or more.
Investors are hoping Tesla shares head north of $400, where it traded briefly in 2021.
While reaching $400 could take some time, the price reaching $250 could occur over the next few months.
There is always a risk in buying stocks, and Tesla stock is a volatile one. Consider your risk tolerance before investing. The stock declined 75% over the last year, and it could do that again at some point. When buying shares, consider your exit point, both the upside, and downside.