Morning Market Thoughts

Good morning. We’re looking at a weaker open this morning, with Tesla ($TSLA) down significantly on disappointing crash tests (the car, not the stock). While the S&P is down about 0.5%, the Nasdaq 100 ($NDX) is down more than 1%. The big difference is that the S&P is still above the 50-day moving average and likely to find support at that level once again, while the Nasdaq 100 has been below the 50-day moving average and likely to hit resistance on any rebound.

As noted last night, stay away from Tesla (TSLA), and respect the price levels in stocks. Each stock you own should be in your portfolio as a part of a PLAN for that stock. Here’s what I mean: Compare Honeywell ($HON) to Tesla ($TSLA). The companies are totally different, and so are the charts. Tesla is a “growth” story and has a lot of fans. The stock has a very high valuation by traditional models and does not even have earnings (EPS growth rate = N/A; P/E = N/A) Honeywell, on the other hand, does make money and is pretty fairly valued…by traditional models (annual EPS growth of 16%, and a P/E of 20). Between the two stocks, I’d rather own HON than TSLA.

But not because of valuation. Rather, because of the differences in price behavior, which reflects investor sentiment. Honeywell is down 1.5% from its all-time high set on June 19th. It’s still in consolidation, but trading above the 50-day moving average. There is an established level of support. That will change at some point in the future. But for now, the stock is working. On the other hand, Tesla will open about 18% below its all-time high set on June 23rd. And it’s clearly broken. There is no support other than the likelihood of some type of oversold rebound as the market opens for trading.

The point is this: Focus on whether you are making money by owning the stock, not on whether the company is making money. Tesla is broken now, and it’s a trading stock for active traders who like to trade the swings. Honeywell is not broken, and it’s a stock that investors are still holding. Because the stocks are so different, the PLAN for each stock should be different. If you are a Tesla fan, you aren’t happy. But don’t make the mistake of thinking that the stock is now cheap and is a great “investment.” It’s not. The chart is broken and irrespective of whether the company is making money, you aren’t.

And that’s all that should matter.

See you in the forum, and at tonight’s training session.

–Dan

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