Wondering whether to step on the accelerator or the brake on Tesla (TSLA)? Here’s your plan for the open. (August 02, 2017)
I want to look at Tesla ( NASDAQ:TSLA ) because I think there is a trade, but honestly, I am just giving it to you straight, it could go either way. No predictions here, it is not what I do. Whenever I have tried to do it I get it right 50 percent of the time, which means I get it wrong 50 percent of the time. What we are going to do here instead is look at levels.
You can see, this is a relative strength line here. It measures how the stock has been performing relative to the S&P 500 ( INDEXSP:.INX ). If it is up that means it has actually been outperforming the S&P 500 ( INDEXSP:.INX ). If it is down it means that it has been lagging. You can see this here, I don’t want to go back and do a play by play over history. But lets just say Tesla ( NASDAQ:TSLA ) has been under performing for a while. They reported earnings after the bell. Good guidance, everything is good. Even Gene Munster was on Fast Money talking about their new car was the best thing, for that price range, that he has seen.
Not only did they post a good number, but they are also getting good reviews. That makes for a little bit of a fire under the butt of the bulls, so to speak. Particularly when you consider that so much of the float is short. There are several articles about how Tesla ( NASDAQ:TSLA ) is the number one shorted stock on the S&P 500 ( INDEXSP:.INX ) I think. It doesn’t matter. The bottom line is they got a lot of shares that are short. There is also an issue of whether all of these short sellers are actually shorting Tesla ( NASDAQ:TSLA ) because they are bearish on the stock. Or whether they are doing it kind of like a hedge against other long positions. I don’t know, happily I don’t need to know, I am just raising that.
My point is, just because the stock is heavily shorted, we can find other stocks that are more heavily shorted. That doesn’t mean that a good number like this is going to flush out all the shorts and they are going to just run for the hills and you got to buy Tesla ( NASDAQ:TSLA ) right away. The good news is, we have got key levels here that can tell us tomorrow what to do; that can give us direction that we can’t get right now.
First of all I am just going to draw a resistance line here. This is where Tesla ( NASDAQ:TSLA ) recently peaked. You will also notice it is also very close to the 50-day moving average. If it weren’t for earnings this would be a really good buying opportunity because you just keep a stop a little bit below, you could even do it down here, 6-7 percent would be your risk. If it were me I would actually keep it a little bit tighter, just under today’s intraday range, 311.00. So if I were buying it here I would keep a stop 5 percent below where it was. Of course all that is out the window because they reported earnings, you don’t get to make that choice.
Lets look and see what the stock is doing after hours. You can see the blow out here. While volume is declining, it is after hours, everybody is having cocktails by now. The stock, though, is continuing to run, and the conference call is just kind of underway. What I am saying is this, this isn’t just a gap and crap like you see on a lot of stocks. This is a stock that could have some mojo going into tomorrow.
So here is what we are going to do: First of all, you don’t want to short Tesla ( NASDAQ:TSLA ), I have tried it before and I kind of got my head handed to me. Don’t short this stock it is a loved stock. But I would be really careful about being long this stock, because it has run up quite a bit. Also, they could issue another secondary at any time. They could just say, “Well gosh, we just need to raise more money.” So there are some things out there that could be a potential negative for you, lets just put it that way.
This is what I do want to do: I want to suggest that, if the stock stays above, say 345.00 tomorrow after 5-10 minutes after the opening bell, then go ahead and be long this stock for a trade, but you have got to have your stop right down here in the low 140.00s. You can protect your purchase with a tight stop. It will probably be up even more tomorrow, upgrades and all that stuff. What I am saying is, the 50-day moving average is your line in the sand. The stock has to stay above there. If it doesn’t, then you don’t want to be long the stock.