After Four Red Days in a Row, Is Tesla's Rally in Trouble?

Shares of auto giant Tesla Inc. (NASDAQ: TSLA) closed lower for the fourth session in a row on Dec. 29, marking a notable shift in tone just days after the stock set a fresh all-time high. Since that peak just before Christmas, shares are down close to 8%, a sharp reversal considering how hard-fought the move was. 

The timing, in particular, is what makes this pullback stand out from other ones this quarter. In a market sitting near record highs, Tesla’s sudden loss of momentum right as it enters blue sky territory raises an uncomfortable question—is this simply a healthy pause, or the first sign that the rally is running out of steam? Let’s take a look at the argument for both sides. 

A Pullback Was Always Possible

Tesla is up more than 100% since April, and the longer-term uptrend remains firmly intact. Even after the recent slide, the stock hasn’t broken any major trend structure—it just looks a bit worse coming after a record high. Many investors had higher expectations for the stock, assuming Tesla’s rally would accelerate after finally clearing long-term resistance, rather than retreat. 

From a purely technical standpoint, a pullback of this size is nothing out of the ordinary and is in line with other ones the stock has seen this year. The latest phase of this rally was fairly one-directional, and periods of profit-taking often follow major milestones.

The stock could fall another 8% from here and still remain within a rising trend channel that has supported the move since the spring. In that sense, the recent selloff can be framed as digestion rather than breakdown. Healthy trends rarely move in straight lines, something Tesla investors will know more about than most.

This outlook is supported by Tradesmith's Health Indicator, a volatility-based measure of stock price health. According to this indicator, TSLA stock is in the green zone and has been there for four consecutive months.

A Change in Tone

While a pullback is normal following an all-time high, four consecutive lower closes do suggest that there’s something more at play than short-term profit-taking. It indicates sudden, sustained selling pressure, with little or no defense evident. The bears have clearly stepped in and, for now at least, have wrestled control firmly back from the bulls.

The key question is whether buyers re-emerge quickly. If they do, this pullback will likely be remembered as another opportunity for long-term bulls. If not, the market may start to reassess how much upside is left before the next significant catalyst—January’s earnings report.

Analyst Support Remains Firm

Despite the recent weakness, analyst conviction has not cracked. Over the past week, the teams at both RBC and Canaccord Genuity reiterated their Buy ratings on Tesla. The latter even raised its price target to $551, implying roughly 20% upside from current levels.

Those calls help frame the selloff as a minor pullback within a much larger trend that still has plenty of room to run, even if near-term price action looks uncomfortable. Whiel Sell ratings, like one from UBS Group last week, also persist, they are rare negative blots on what is otherwise a solid analyst report card. That broader trend of ongoing support matters, particularly during moments of uncertainty like this.

Why the Next Few Sessions Matter

Still, it would be a mistake to dismiss the recent action entirely. Runs of red days like this are rare for Tesla, especially immediately after setting new highs. The fact that this is happening while the broader market remains strong adds to the unease.

The stock’s valuation sharpens that tension. With Tesla trading at a price-to-earnings ratio north of 300, there is little margin for error. Any hint of disappointment in the company’s next earnings report at the end of January could be punished swiftly. Confidence, not just momentum, is now part of the equation.

That makes the coming sessions critical. How Tesla trades through the rest of the holiday week and into early January will offer clues about the rally's health. Stabilization or a quick rebound would reinforce the view that this is a routine pullback. Continued weakness, on the other hand, would embolden bears and shift the narrative from consolidation to doubt.

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The article "After Four Red Days in a Row, Is Tesla’s Rally in Trouble?" first appeared on MarketBeat.