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Wednesday, June 6, 2018

Where is Tesla standing now?


I have been bearish for Tesla for the past two months or so and I was even trading for a downside move for it. In the past week (especially today), Tesla has made some strong moves to the upside. So it’s interesting to see where it stands and what may be the next major direction for it. But let me first be clear that there is no way to analyze Tesla from the fundamental perspective as there is no way for it to ever make money based on the current business model. As I said and I maintain my opinion that I’m long term bearish for Tesla fundamentally. Therefore anything we are talking about here is purely technical and TA is largely driven by the traders sentiment, which can be extremely bullish or bearish at any point of time. As a Street darling, Tesla has no lack of both. Right now and interestingly, its TA has several major setups that can trigger its next major move. Let me try to decipher it a bit for you with the chart below.
Downward trend line: Since its all time highs around $360 back in March, it has tanked with a clear downtrend for the past three months. It briefly touched below $250 at its low. But now it has broken out from this downtrend line. That’s a bullish sign.
Sideway moves: While it feels like to have moved a lot in the past few months, actually it has been simply moved sideways between $270-310ish in the period. The strong jump today pushed it towards its upend of the band, a strong resistance. It is also hitting its 200 DMA, another strong resistance. Unless it can decisively break it out, it will still be confined within the sideway moves, which is directionless.
Double bottoms: It has also formed a clear double bottom during the sideway moves, which is a bullish sign.
Head & Shoulders: We can also see the H&S formation now, which is typically bearish.
Neutral Flag: Its sideway moves have also created a flag, which is not clear yet bullish or bearish. If it breaks out to the upside, then the next major move is likely in the scale equivalent to the flag pole, about 30-40 points. If breaking down, then it can easily tank towards $250 again. Today’s seemingly strong pop is just letting it bump against the upend of the flag. It will be critical for it to decisively break out to be bullish but the resistance is also overwhelming for now.
Momentum indicators: Its daily MACD is showing positive sign as well as its RSI. Its weekly momentum has more work to do but is also moving for its upside. I think it is more bullish than bearish.


It’s amazing to see so many technical setups within one chart and I hope my TA analysis for Tesla can be included in a textbook as a case study!😜😉 I guess you all get confused by so many conflicting TA signals, right? Me too but I’m now more lining towards the bullish side than bearish when putting all together. The momentum indicators give me more weight in the analysis. In other words, while Tesla may still be moving sideways for a while, its next major move is probably to the upside and the downside risk is much smaller in my mind.
 
Just a quick word how I have done with my Tesla bearish trade in the past two months. In the past, I tended to just stick to my direction with a trade maintained in the period (i.e. static without changing). Overtime I learnt that it is very challenging to make money for either direction, especially for high flying stocks like Tesla that is extremely volatile and can either move up or down sharply by headline news. This kind of volatility is especially damaging for option long only trades (up or down) as the time decay can easily eat off all the potential profits even if my ultimate direction was correct, i.e. losing while being right. So I have changed my trade strategy significantly now with dynamic option spreads. It’s a bit complicated to explain to most of folks without knowing the option trades well. For those savvy with options, let me just give you a simple idea. I was expecting Tesla to move down towards $260 when it was bouncing back towards $300 two months ago. So my long put arm has that strike due Jun 15. The other arm was a put selling initially also at $260 with an earlier date. I then used the volatility of Tesla in the past two months to have pocketed two times nearly full profits of the put selling arm (i.e. closing them nearly worthless when it jumped high), which has already made me more money than the long put cost. Using its last significant drop about 3 weeks ago, I reinstituted my put selling arm with a strike of $280 due in Jun 15 since I started to see more bullish sign for Tesla now while I’m still holding my $260 put arm intact. As of now, it appears the chance is very high that Tesla will not drop below $280 in another week before the expiration. So my total return from this dynamic trade via a few times of maneuvering is quite sizable while Tesla is doing virtually nothing in terms of its share prices and with very limited losing risk. Well I’m not exactly right to expect it to tank down to $260 since I opened my trade but do I need to care?  Talking about the art of trading! Of course, it is not for everyone, probably not for most of folks as it requires some good TA skills and the willingness to think out of the box. So next time when you hear me talking down on something, it just means I’m having a general bearish view for its direction for a period of time but my trading may just be swinging, up or down moving with the waves. Always remember, trading is just an art, not a rocket science!
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