Analyzing the stocks that broke down this month. Tesla faces a make-or-break moment
After four straight days of losses, many stocks have taken a hit. So how do we identify the best candidates for a potential mean-reverting move? With literally thousands to choose from, we need a structured approach. Using the finviz.com database, we begin with 5,506 common stocks (excluding ETFs). To refine the list: Filtering for stocks with at least 500K average daily volume and a price of $10 or higher narrows it to 1,649. Looking at only oversold stocks (RSI below 30) reduces it further to 151. To focus on uptrends, we can filter for stocks trading above their 200-DMA, bringing the number down to 35… Among those 35, only eight are S & P 500 members: TSLA, SYF, APO, RJF, AXON, PNR, GDDY, NOW Three of those are in the NDX: TSLA, AXON & MSTR And that means that just two are in both the SPX & NDX: TSLA & AXON. Axon (AXON) is responding well to earnings Wednesday, with its preceding sell-off having created an extreme oversold state that traders have bought in earnest so far. Tesla’s 11-week rate of change is now at -30%, and the decline looks even worse when factoring in intraday data. This kind of severe drawdown has only occurred seven times before in its history (excluding overlapping instances). Notably, all but one of those instances (fall, 2022) led to strong rebounds and/or major trading lows. While this decline is particularly concerning given that it has occurred immediately after TSLA ripped to new highs, history suggests it’s not unprecedented. The stock has endured similar sharp pullbacks following highs in 2016, 2019, and 2021, only to regroup and eventually surge higher. Tesla chart The key question now: Can history repeat itself, or is this time different? When stocks crater, the selling pressure often becomes relentless, and TSLA has been no exception. The stock has now retraced 50% of its entire 2023-2025 advance in just under three months. Adding to the significance of this level, TSLA is now sitting near former resistance from the summer of 2023, a potential technical pivot zone. Whether this area acts as a stabilization point or merely a pause in the selling remains to be seen, but given the magnitude and speed of this retracement, it’s clearly an important spot for the stock. Among the other seven S & P 500 stocks identified by our screen, Pentair (PNR) stands out. The stock was sitting right on its 200-day moving average through Tuesday’s close. Since reclaiming this long-term support in early 2023, the stock has tested the 200-DMA twice — October 2023 and June 2024 — both times using it as a launching pad for a reversal higher that ultimately led to new highs. Also, PNR’s 14-day RSI has just hit its lowest level since summer 2022, highlighting how short-term oversold the stock has become. If this pattern plays out like it has in the past, a bounce could materialize soon, with an upside target near its former highs around $110. This illustrates how we can narrow down a large set of potential trade ideas to just a select few with higher conviction. Of course, countless other factors can be incorporated into the process, and which ones to use depends on personal preference and an understanding of the current trading environment. When the market begins to stabilize again, we will shift our focus back to bullish chart patterns, which have worked well over the past two years. However, history shows that these setups have been most effective only after the S & P 500 has rebounded from periods of elevated volatility, a condition the market currently finds itself in again now. DISCLOSURES: (None) All opinions expressed by the CNBC Pro contributors are solely their opinions and do not reflect the opinions of CNBC, NBC UNIVERSAL, their parent company or affiliates, and may have been previously disseminated by them on television, radio, internet or another medium. THE ABOVE CONTENT IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY . THIS CONTENT IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND DOES NOT CONSITUTE FINANCIAL, INVESTMENT, TAX OR LEGAL ADVICE OR A RECOMMENDATION TO BUY ANY SECURITY OR OTHER FINANCIAL ASSET. THE CONTENT IS GENERAL IN NATURE AND DOES NOT REFLECT ANY INDIVIDUAL’S UNIQUE PERSONAL CIRCUMSTANCES. THE ABOVE CONTENT MIGHT NOT BE SUITABLE FOR YOUR PARTICULAR CIRCUMSTANCES. BEFORE MAKING ANY FINANCIAL DECISIONS, YOU SHOULD STRONGLY CONSIDER SEEKING ADVICE FROM YOUR OWN FINANCIAL OR INVESTMENT ADVISOR. Click here for the full disclaimer.
