Tesla recently zoomed 29% higher over a 3-day period, then provided a low-risk pullback entry for swing trading. Continue reading for a clear and concise walk-through of how we bought $TSLA just in time for another round of gains.
In the November 5 issue of The Wagner Daily report, we alerted subscribers to a potential pullback buy entry in Tesla ($TSLA) with the following technical commentary and chart:
“There is one new official setup for Tuesday in $TSLA. We like the big volume gap up, followed by the light volume pullback that stopped short of touching the 10-day MA.
Our entry is over Monday’s high with a stop one point below Monday’s low. The target area is $380 – $400 area.”
The massive breakaway gap above resistance on October 24, along with the follow-through rally the next day, really made the $TSLA chart stand out.
Most importantly, that huge upside move was confirmed by an impressive volume surge both days.
Specifically, both days posted gains of more than 9% on volume that was 300% greater than average!
The combination of such bullish price and volume action should grab every trader’s attention, as it is a sign of mutual funds, hedge funds, and other institutions putting big money to work (institutional accumulation).
However, after a monstrous 29% gain over a three-day period, the price was too extended in the near-term to establish a position.
Still, that powerful advance generated a confirmed buy signal that simply required some patience to wait for a low-risk entry point to emerge.
Pullback & Go!
As clearly explained in last week’s blog post about pullback trading, we always look for orderly price action and lighter volume when a strong stock corrects from its high.
As shown on the chart above, an orderly, lower volume pullback occurred in $TSLA from October 29 to November 1.
Volume dried up considerably on November 1, which was a bullish signal that suggested the pullback may have ended.
We then began looking for a change of character in the price action, which occurred in the form of a bullish reversal candlestick on higher volume the next day (November 4).
That bullish reversal is all we needed to produce a low-risk swing trade setup for buy entry in our stock pick newsletter.
That night, we listed our buy trigger above the November 4 high, with a protective stop beneath the low of the same day (plus some “wiggle room”).
The daily chart below shows the subsequent price action since then:
The $TSLA setup triggered for buy entry in our model portfolio the following day (Nov. 5), then cruised steadily higher over the next three days. Again, increasing volume confirmed the move higher.
The Upside Target
We currently remain long the $TSLA swing trade with an unrealized gain of +8% since last week’s buy entry.
On the first chart that showed the pullback setup (before our entry), we said we were “looking for the price to rally 10-20% higher over the next few weeks.”
The 10% upside target was a relatively safe bet, while the 20% target was due to resistance from Tesla’s prior highs from 2018 (around $380).
Generally speaking, trades that start showing a profit immediately after entry are the best.
Remember that not every breakaway gap goes on to provide an ideal, low-risk buy entry.
If no buy point develops on runaway stocks, then we simply pass on the trade and look for the next opportunity.
Chasing an entry of a runaway stock puts you in a position of weakness from the beginning–operating from weakness leads to poor decision making, and is a surefire way to risk a big loss.
On the other hand, patient and disciplined stock traders who follow a rule-based trading system are continually rewarded for their efforts.
Tesla is just the latest such example of a winning stock pick based on the proven Morpheus trading strategy.
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