You’ve likely heard of Elon Musk selling 10% of his stake in Tesla Inc (Nasdaq: TSLA). You would think that would be bearish news, but the price has remained fairly resilient. At times, when something sounds bearish it doesn’t get discounted right away. For TSLA, that appears to be the case, but the Bump and Run price pattern tells a more bearish story.

Elon’s Selling

Anytime you consider selling by an insider, you need to look at the total shares held and then consider the percentage of the shares sold. For the CEO of TSLA, Elon Musk, that is harder to gauge. In the graphic below, you’ll see that Kimbal Musk, director, is the largest holder of TSLA shares.

While the director did sell 88,500 shares on November 5, that is small in comparison to the shares that his brother has sold since November 8. The confusion lies in the fact that Elon has a substantial number of stock options. Since he declared his intent to sell 10% of his holdings, it’s a lot easier to understand how big both his position and sell is.

Whether the selling is in regard to needing the money to pay taxes, cover loans or to just take advantage of a ridiculously high share price, the selling is a bearish indication.

Bump-and-Run Reversal Pattern Basics

Looking at the movement in the price of TSLA, it fits the standard of a Bump-and-Run price pattern well. The indication of this pattern is that TSLA may have downside to $800 in the coming weeks to months.

Let’s take a closer look at this pattern.

Pattern Description:

This pattern is comprised of three phases and looks similar to a mountain range. There is the lead-in phase, the bump phase and the downhill run. The lead-in phase is like a small range of foothills before the larger mountains. Following an advance, the bump phase forms as the price forms a flat or rounded top. The downhill run phase is after the breakout. For this type of formation to be analyzed an arithmetic chart will need to be used.

Volume Description:

Volume is typically high at the beginning of each phase and decreases throughout each phase. 

Breakout Confirmation:

A close below the lower trend-line drawn across the lows, during the lead-in phase, with above average volume.

Measuring Technique:

The price target is the lowest point of the lead-in phase.

Statistical Notes:

Wider formations tend to perform better than narrower formations, and a pullback following a breakout tends to hurt performance.

TSLA Hit-and-Run

As we translate that understanding to TSLA, you’ll see a very similar pattern that is in the corrective phase. In the chart below, you’ll see the long lead-in phase from May of this year through the middle of October. The bump phase kicked in on October 15 to the high on November 4. The downhill phase began with the bearish breakout on November 4 and carries a target of the trendline across the lead-in phase. The trend line is currently pointing to around an $800 price target for TSLA.

Conclusion

It’s likely hard to imagine TSLA trading at $800 but considering its valuation and meteoric rise in October and early November, it shouldn’t. While no pattern is perfect, it can help understand the psychology of the price pattern and help establish targets. For TSLA, the large bump phase means that this Bump-and-Run pattern may feel like a Hit-and-Run.