Tesla's Pennant Just Snapped: Here's What It Means for the Stock

After spending nearly three months coiling into a tightening pennant formation, Tesla Inc. (NASDAQ: TSLA) has finally made its move and is decisive. Shares have popped 12% in the past three sessions, breaking above the upper trendline that had been capping upside momentum since late May.

The market has been waiting for Tesla to tip its hand, and this week’s breakout has made the call: momentum is firmly back with the bulls.

The pennant had been narrowing steadily, compressing price action and leaving both sides of the trade restless. Bulls had to watch the stock make a series of lower highs since June, while bears could point to the repeated failures at resistance as proof that the rally was running out of steam.

Yet, they could not send the stock to lower lows, and Monday’s 2.85% pop means the stock is now firmly above July’s high. 

Tesla: Improving Fundamentals Reinforce Long-Term Investment Case

The good news for those of us on the sidelines is that while the technical breakout is a story, there are plenty of other reasons to be excited. Take Tesla’s fundamental situation, for example. After a run of lackluster earnings reports over the past two years, Tesla’s most recent quarterly numbers delivered a much-needed positive surprise.

Revenue contracted less than feared, margins improved, and earnings per share came in ahead of consensus.

For many on Wall Street, this was a reminder that Tesla remains one of the most resilient names in the electric vehicle sector. Yes, the company still faces intense competition and macro headwinds, but it also has a proven ability to navigate challenging environments and keep innovating.

For investors with a long-term horizon, not to mention patience and the ability to stomach volatility, Tesla remains a compelling stock to own. 

Wedbush Reiterates $500 Price Target, Sees 50% Upside

Some of the renewed analyst support around the stock backs up the argument that we’re watching a new phase of the rally begin. Wedbush Securities, one of the most vocal Tesla bulls, had already reiterated its Outperform rating earlier this month and its $500 price target.

Including the gains of the past few sessions, it points to a targeted upside of nearly 50%.

The bullish thesis rests on Tesla’s position as the leading electric vehicle (EV) brand globally and its expanding technology platform.

This includes progress in energy storage, AI-driven autonomous driving capabilities, and the anticipated rollout of new models that could capture additional market share.

While near-term results will still swing on quarterly deliveries and margins, Wedbush continues to believe in Tesla’s long-term trajectory. 

The Bear Case Isn’t Gone: Valuation, Legal Risk, and Competition

Still, the bears have their ammunition. Tesla’s price-to-earnings (PE) ratio remains nearly 200, frothy by any standard, particularly for a company whose revenue is dropping yearly. It appears Wall Street is happy to overlook this for now, but any stumble in execution over the coming months could easily trigger a sharp pullback.

There are also ongoing headline risks. The company faces a class-action lawsuit alleging CEO Elon Musk misled investors on safety issues tied to its self-driving technology, including its much-vaunted robotaxi.

And while EV adoption is growing globally, Tesla’s market share has slipped in certain regions. As we recently noted, EV registrations may have jumped 58% last month in Germany, but Tesla’s own registrations fell more than 50%. 

Market Context Is Helping Tesla Regain Momentum

Despite these risks, broader market conditions are working in Tesla’s favor. The major equity indices remain at or near all-time highs, and risk appetite is strong. Investors are willing to pay for growth, and Tesla benefits from that sentiment shift.

Compared to back in April, when the broader market was under pressure and high-multiple stocks like Tesla were being sold indiscriminately, today’s backdrop is far more supportive.

Looking ahead, the $360 level, where Tesla peaked in May and June, is now the critical resistance to watch. If the stock can break above this level with strong volume, it could pave the way for a much larger upward move, possibly aiming for the $400 area soon.

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The article "Tesla’s Pennant Just Snapped: Here’s What It Means for the Stock" first appeared on MarketBeat.