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Tesla stock hits overbought territory, correction imminent?

Tesla stock hits overbought territory, correction imminent?
Elmaz Sabovic

Recently, Tesla (NASDAQ: TSLA) stock has been on an impressive run, adding almost 40% to its value in the previous month, of which 26% was in the last five trading sessions alone; this rapid increase has taken its price to $253 in the pre-market trading but has also entered a dangerous overbought territory.

Namely, the increase in price was bolstered by a high amount of buying activity of TSLA stock, which led its Relative Strength Index (RSI) indicator to reach a dangerously high level of 84.

RSI indicator for TSLA stock. Source: TradingView
RSI indicator for TSLA stock. Source: TradingView

This means investors buy TSLA shares at elevated prices, with a potential correction that might occur soon.

What are other TSLA indicators saying?

Tesla has recently broken through the ceiling of a medium—to long-term falling trend channel, signaling either a slower decline or the beginning of a more horizontal movement. 

Breaking through the resistance at $186 gave a positive signal, forming an inverse head-and-shoulders pattern. 

TSLA stock support and resistance. Source: TradingView
TSLA stock support and resistance. Source: TradingView

This suggests a potential rise to $258 or higher. The stock is approaching resistance at $263, which could lead to a negative reaction. 

The positive volume balance, indicating aggressive buyers and passive sellers, strengthens the stock further. 

With the RSI above 80 following a significant price increase in recent weeks, the stock shows strong positive momentum, pointing to further potential gains. 

However, for large stocks like Tesla, a high RSI can also indicate that the stock is overbought, suggesting a possible downward correction.

Events that could significantly impact TSLA stock price

After posting a beat on Q2 delivery estimates, Tesla’s stock price surged in the previous trading sessions, obliterating short sellers and causing over $3.5 billion in losses, which made Elon Musk issue a warning to those who dare short his company stock.

Another potential price catalyst is fast approaching: Tesla’s Q2 quarterly report on July 23 will provide a clearer picture of EV makers’ performance over the previous three months and could potentially drive or plummet TSLA stock price.

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