How to Read Stock Charts

Although I aim to invest in fundamentally sound companies, I will use technical analysis techniques to help me determine when to buy or potentially sell a stock.

Today, I’ll go over some recent examples of technical charts of growth stocks: Tesla (NASDAQ: TSLA), Amazon (NASDAQ:AMZN), and (NASDAQ:JD). But these are techniques that you can apply to any stock chart, including dividend stocks

There’s a lot of information here. So, it’s probably better to watch the YouTube video instead and pause it whenever you need to. However, in case you prefer a blog version, here it is:

JD Stock Chart Reading

JD’s recent technical chart is beautiful and perfect learning material so I’ll start with this one.

JD stock chart showing stock bottoming, making higher lows, and breaking out
Figure 1. Source: Stockcharts with author annotation

Figure 1. It bottomed and then consolidated with higher lows before breaking out from the resistance that was marked by its 200-day simple moving average (or SMA) that’s in red.

JD stock chart showing potential bottom signal with relative strength index 30, moving average convergence divergence lines, and consolidation before breaking out above a long-term simple moving average.
Figure 2. Source: Stockcharts with author annotation

Figure 2. Notice that two indicators suggested a potential bottom. First, the Relative Strength Index (or RSI) hit below 30 (so the stock was oversold) and it eventually rose above the 30 mark.

Second, the Moving Average Convergence Divergence (or MACD) had the black line crossing above the red line, which indicated a change in direction of the stock.

The bottom was finally confirmed when JD stock climbed above the 50-day SMA, and it consolidated to eventually break above the long-term SMA.

Tesla Stock Chart Reading

Up next, we have Tesla. It’s a super interesting chart.

TSLA stock chart showing the grow stock trading in a channel
Figure 3. Source: Stockcharts with author annotation

Figure 3. The growth stock had a resistance at about $350 for a long time (arguably for about 1 and a half years) and traded in a channel between that resistance and about $250.

TSLA stock chart showing support, a breakdown, and then bottoming
Figure 4. Source: Stockcharts with author annotation

Tesla finally broke below the bottom of the channel at $250 before hitting a bottom below $200.

TSLA stock chart showing potential bottom signals from RSI 30 and MACD cross over
Figure 5. Source: Stockcharts with author annotation

Figure 5. You can see the RSI hitting 30, the stock bouncing from a bottom, and later confirmed by the MACD (“mack-Dee”) black line crossing above the red.

TSLA stock chart showing long-term resistance before a breakout and HUGE upside
Figure 6. Source: Stockcharts with author annotation

Figure 6. And when it had that long bar that broke above the three SMAs, it was a positive signal. And it was super duper positive technically when Tesla broke above the $350 long-term resistance and the stock almost tripled from there to over $900, creating a short-term bubble.

TSLA stock showing bearish shooting star bar. If RSI crosses below 70, can indicate start of downtrend
Figure 7. Source: Stockcharts with author annotation

Figure 7. Tesla is super overbought with an RSI of over 90. But a downtrend doesn’t start (potentially) until the RSI crosses below 70. Still, a shooting star is a bearish signal.

Amazon Stock Chart Reading

Lastly, we have Amazon. 

AMZN stock chart showing failing to break out in July 2019, consolidating on the 50-day SMA, and then finally breaking out above $2,000 per share in early 2020
Figure 8. Source: Stockcharts with author annotation

The stock failed to breakout in July 2019. And it retreated to the 50-day SMA. Then, it traded at neutral territory, which was an RSI of about 50 for a few months before it accumulated strength at about $1,900 and finally popped above $2,000.

Image of a quote explaining that underlying strong fundamentals of companies drive higher stock prices. And that reading technical charts of stocks is a good tool to help identify buy or sell targets.
Source: Author

Where will the stocks go from here? You’ll find that a lot of the positive price action of these stocks are driven by the fundamental strength of the companies, such as reporting positive financial results for a quarter.

So, technical charts are a useful helper for me to identify buy or sell price targets after I’ve identified a fundamentally strong company I want to invest in. 

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Disclosure: As of writing, we own shares of AMZN.

Disclaimer: I am not a certified financial advisor. This article is for educational purposes, so consult a financial advisor and or tax professional if necessary before making any investment decisions.

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