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Tesla stock is the most oversold it has ever been

As Tesla Inc.’s stock keeps sinking toward the longest losing streak in more than four years, it has become the most oversold on a technical basis since going public 12 years ago.

Keep in mind that an oversold reading doesn’t necessarily mean the selloff is over, but it does send a warning to sellers that a snap-back bounce could occur at any time.

The electric vehicle maker’s stock
TSLA,
-9.69%

tumbled 8.5% in midday trading, putting it on track for the lowest close since Sept. 8, 2020, after China-based rival Nio Inc.
NIO,
-7.70%

 cut its delivery outlook. Tesla shares have plummeted 28.6% over the past seven sessions, which would mark their longest streak of losses since the seven-day stretch that ended Sept. 5, 2018.

The stock is headed for record monthly, quarterly and yearly declines. It has plunged 60.2% over the past three months, making it the worst performer in the S&P 500 index
SPX,
-0.24%

over that period.

With all that selling, the stock’s Relative Strength Index (RSI) has dropped toward a record low of 17.26.

The RSI is a momentum indicator that measures the magnitude of recent declines against the magnitude of recent rallies. It can be used to compare how hard sellers are selling, or buyers are buying, during other periods of significant stock moves.

Many chart watchers believe the RSI depicts an oversold condition, meaning sellers have been a bit too aggressive relative to recent and past behaviors, when it falls below 30.00. Readings above 70.00 suggest an overbought condition.


FactSet, MarketWatch

As the chart above shows, it has exhibited oversold conditions a number of times over the past few months. Not only did the stock not snap back too sharply even as the RSI bounced, it continued to weaken. Some on Wall Street believe “oversold” is an ability rather than a condition, meaning the ability to become oversold is a sign of a downtrend’s strength.

With the current selloff, the RSI fell below the previous record low of 18.62 on seen on Feb. 10, 2016, after the stock had plunged 67.0% over a seven-week period.


FactSet, MarketWatch

At that time, the stock had bottomed out on the same day at a two-year split-adjusted closing low of $9.58. It rocketed 85% before peaking eight-weeks later at $17.69, as RSI rose to an overbought reading of 78.77.

If Tesla’s stock does start snapping back, investors should keep an eye on how far RSI can climb to judge the strength of the rally. During the oversold bounces in October and late November of 2022, RSI failed to surpass the 50.00 level, and the bounces ended quickly.

Meanwhile, after a brief and shallow oversold dip in May, the stock rallied nearly 50% as RSI rose above the overbought threshold of 70.00.

And when the stock finally peaked at a higher high in late September, RSI actually made a lower high, to show that it had lost the ability to become overbought.

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