Tesla, Inc was trading down about 2 percent on Wednesday, breaking bearishly from an inside bar pattern the stock had been developing.
An inside bar pattern indicates a period of consolidation and is usually followed by a continuation move in the direction of the current trend.
An inside bar pattern has more validity on larger time frames (four-hour chart or larger). The pattern has a minimum of two candlesticks and consists of a mother bar (the first candlestick in the pattern) followed by one or more subsequent candles. The subsequent candle(s) must be completely inside the range of the mother bar and each is called an “inside bar.”
A double, or triple inside bar can be more powerful than a single inside bar. After the break of an inside bar pattern, traders want to watch for high volume for confirmation the pattern was recognized.
Bullish traders will want to search for inside bar patterns on stocks that are in an uptrend. Some traders may take a position during the inside bar prior to the break while other aggressive traders will take a position after the break of the pattern.
The Tesla Chart
When Tesla’s stock broke bearishly from the inside bar pattern, the move lower didn’t come on higher-than-average volume and the stock popped back up into Tuesday’s trading range. The lack of follow-through on the potential bear break is likely due to the market awaiting the Federal Reserve’s decision on raising interest rates at 2 p.m.Bullish and bearish traders can watch for a true break up or down from the inside bar pattern to occur on higher-than-average volume later on Wednesday in order to gauge future direction. In the meantime, Tesla is likely to continue consolidating into a tightening range.
There’s a possibility Tesla could be in the process of printing a bull flag pattern on the daily chart, with the pole developed on Monday and the flag over the two days that have followed. The long upper wicks on the two candles within the flag indicate there are sellers above the $900 level, however, which makes follow-through on a bull flag less likely.
Tesla is trading slightly below the 200-day simple moving average, indicating the stock is currently experiencing a bear cycle. If Tesla is able to break up from the inside bar or bull flag patterns, the stock will regain the level as support, which would give bullish traders more confidence going forward.
Tesla has resistance above at $900.40 and $945 and support below at $877.95 and $821.
