bearish indicators
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3 Common Signals to Help You Predict Tesla's Next Price Crash

Do you know it's possible to predict a market crash through stock chart analysis?

Today SlashTraders will use Tesla stock as an example to show the 3 common bearish signals, so you can react to bearish trends easily.

How Do You Know a Stock Is Overvalued?

We can use Trefis to help us determine a stock's fair value. If we use TD Ameritrade's Analyse tab to look at TSLA's Fundamentals, we can see Trefis estimates Tesla to worth $391 per share.

特斯拉股票Trefis估值
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Trefis estimates Tesla's fair value as $391.

We can read the TD Ameritrade chart to find the intervals where the stock price exceeded $390.

TSLA 390美元線
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Use the $390 level to mark the interval where TSLA has been severely overvalued.

Now we know when TSLA is overvalued, we have the first bearish signal.

Use Bollinger Bands to Find Over Extended Prices

Bollinger Bands uses historical price data to model the statistical probability of future stock prices in a normal distribution. Its +/-2 standard deviation is a good reference to estimate the Implied Volatility to the stock.

normal distribution and standard deviations
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Normal distribution is a statistic estimation of where the price will be.

There is only a 5% chance that a sample will occur outside +/-2 standard deviation (σ).

特斯拉股價布林通道
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There is a 95% chance that prices would fluctuate between the Bollinger Bands.

When TSLA stock price exceeds the upper Bollinger Band, we can say the price has overextended, and there is a high probability that the price will correct downwards.

特斯拉突破布林通道
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Tesla stock price moved beyond the Bollinger Bands on 2 occasions in the past year.

TSLA price moved beyond the Bollinger Bands a few times in the past year. If the price penetrated the Bollinger Bands in a upward move, there would be a high probability a downward correction would follow.

Use RSI to Find the End of Overbought Conditions

RSI compares historical data with current price movements to determine whether the stock is in Overbought or Oversold conditions.

When RSI exceeds 70, the stock is Overbought and will likely continue to rise; while RSI is below 30, the stock is Oversold and will likely continue to fall.

RSI oversold and overbought conditions
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We can use RSI to determine Overbought and Oversold conditions to predict price directions.

If the stock price stays Overbought for extended periods of time, we expect the stock price to fall after exiting Overbought conditions.

The RSI analysis of Tesla price fluctuations shows TSLA were Overbought for long periods in the last year. When Overbought ends, there is a high chance the stock will fall next.

特斯拉rsi超買結束
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After long periods of Overbought, there is a high chance of TSLA price falling.

Now we know the 3 common bearish signals, we can use them to estimate when the stock price will fall. In our experience, when at least 2 signals appear at the same time, there is a huge probability the stock price will crash next.

If we overlay the 3 bearish signals together, we can see TSLA satisfied at least 2 bearish signals in both the start and end of January.

combination of bearish signals
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At least 2 bearish signals were present at both early and end of January.

As expected, Tesla stock price fell in a big way after the end of January.

Take Advantage of the Down Trend by Selling Call At the Resistance

Since we can use bearish signals to forecast a price drop, we can sell a Call option at the resistance to be profitable from a bearish trend.

Since TSLA's last high point was $900, that could be the resistance to a future price correction.

900 peak price resistance
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TSLA's previous $900 high becomes the resistance for future upward trends.

We can take advantage of the end of Overbought in early February to sell a Call option at $900.

賣特斯拉的call options
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Selling a $900 Call is a high probability trade.

If the TSLA price does not rise above $900 before the Call expires, we will collect the full premium of the trade.

Now it's your turn to experiment with the tactics we shared today, and look for overvalued stocks to profit with a Call option.

If you would like us to analyse other popular stocks, please leave a message below.

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