Is This Nasdaq Stock Revving Higher?

Here's How to Be Ready the Next Time Momentum Stocks Pull Back Like This

Most stocks on the Nasdaq have been rolling over recently, but one big name could be on the verge of revving to new highs.

Tesla Motors (TSLA) has traded in a tight range since late October, even as volatility swept the broader market. Some potentially important things have happened during that time, including a so-called “golden cross” chart pattern.

That’s when a stock’s 50-day moving average rises above its 200-day moving average. Technicians often view that as a sign of trend reversing higher, as we recently saw in “boring names” like McDonald’s (MCD) and Johnson & Johnson (JNJ).

TSLA has also shown improvement on a fundamental front by increasing production of its key Model 3 car to 7,000 units per week. That’s probably the single most-important metric investors have watched to determine whether Elon Musk’s electric-car pioneer will “make it” as a mature company.

Tesla Motors (TSLA) chart showing golden cross.

Its last earnings report on October 24 also showed a swing to profitability as gross margins widened sharply. Even before that announcement, noted short seller Citron Research turned bullish on the name because of signs that its production bottlenecks were easing.

Those positive headlines followed a volatile August and September, entailing executive departures, apparent drug use, an abortive buyout and fraud charges.

But at the end of the day, all that really matters is whether TSLA will manage to increase production to the point where it’s a bona-fide car maker. If it succeeds and moves into the big leagues with General Motors (GM) and Ford Motor (F), large institutional investors may have little choice but to own it — no matter how many times Musk smokes pot on camera.

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David Russell is VP of Market Intelligence at TradeStation Group. Drawing on nearly two decades of experience as a financial journalist and analyst, his background includes equities, emerging markets, fixed-income and derivatives. He previously worked at Bloomberg News, CNBC and E*TRADE Financial. Russell systematically reviews countless global financial headlines and indicators in search of broad tradable trends that present opportunities repeatedly over time. Customers can expect him to keep them appraised of sector leadership, relative strength and the big stories – especially those overlooked by other commentators. He’s also a big fan of generating leverage with options to limit capital at risk.