rewrite this title The Daily Breakdown: Tesla bulls look for momentum

The Daily Breakdown looks at the charts for Tesla stock, which continues to hold support after pulling back from its election-fueled rally.

Tuesday’s TLDR

S&P 500 fills election gap
Tesla looks for a breakout
JPMorgan kicks off earnings

What’s happening?

Monday was a rough open for the US stock market, while Bitcoin hit its lowest level in almost two months. However, both were able to reverse their fortunes, with both Bitcoin and the S&P 500 closing higher on the day. 

From peak-to-trough, the S&P 500 has pulled back a little more than 5% — which is normal — with yesterday’s lows officially “filling the gap” we had from the election after risk-on assets enjoyed a monstrous rally. 

That doesn’t mean more downside can’t ensue or that this correction won’t continue lower. Active traders need to exhibit discipline and remember that we’re still in a choppy, elevated-volatility environment. 

Long-term investors might find it opportunistic to start building a watchlist of stocks and ETFs they want to own — or start accumulating positions — with many names down more than the S&P 500’s ~5% dip. 

Remember, earnings season kicks off tomorrow morning, alongside the CPI report.

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The setup — Tesla

Shares of Tesla have been in a corrective phase since its election-fueled burst sent the stock scorching higher. From the close on Nov. 5 to the highs in December, Tesla stock nearly doubled. 

After recently correcting a little more than 20% from those highs, support seems to be coming into play. You might notice that the 50-day moving average hasn’t actually been tested yet. Instead, there’s support coming from the anchored VWAP, which I “anchored” back to the election-day gap up. Some may prefer to anchor to the pre-election session, which is fine too. 

For those that use multiple timeframes, the 10-week moving average has also been acting as support in recent weeks. Check out TSLA’s chart, if you’re so inclined.

Bulls are looking for two things here. First, they want to see support continue to hold. If the $380 level breaks, then the $360 level and the 50-day moving average are on watch next. 

They’re also watching for a breakout over downtrend resistance. If that happens, TSLA stock could gain even more momentum amid its rally. 

If shares remain below downtrend resistance, then technical investors may remain cautious. 

Options

Investors who believe shares will break out — or those who are waiting for the potential breakout to happen first — can participate with calls or call spreads. If speculating on the breakout rather than waiting for it to happen first, investors might consider using adequate time until expiration. 

For investors who would rather speculate on resistance holding, they could use puts or put spreads. 

To learn more about options, consider visiting the eToro Academy.

What Wall Street is watching

JPM – JPMorgan helps kick off earnings tomorrow, alongside Citigroup, Wells Fargo, and Goldman Sachs. JPMorgan is the largest of the bank stocks, weighing in with a market cap of nearly $700 billion. In fact, JPM is the 12th-largest company in the S&P 500. 

URI – United Rentals plans to acquire H&E Equipment, paying $92 a share in an all-cash deal. The acquisition is being valued at $4.8 billion and is sending shares of HEES screaming higher this morning, up more than 100% after closing near $44 on Monday. 

HON – Following continuous pressure from activist investor Elliott Investment Management, Honeywell will reportedly proceed with a breakup. The plan includes splitting into two separate publicly traded companies, with one business focused on aerospace and defense, while the other is focused on automation.

Disclaimer:

Please note that due to market volatility, some of the prices may have already been reached and scenarios played out.