Tesla Stocks Fall. Difficult.
The obvious reason is that the market is undergoing a cyclical rotation, from growth to value stocks, which perform better during an economic recovery, something vaccines and stimulus packages are expected to promote. Electric vehicle manufacturer Tesla (NASDAQ 🙂 could be considered the mother of all largecap growth stocks. In 2020, the shares of the Palo Alto-based company were up 720%.
But this year has been very different so far. For the past three months, the stock has been on a wild ride. It is currently down nearly 11% for the year, compared to the tech-heavy index, which is only 0.09% lower at yesterday's close.
However, there could be a secondary reason why investors in electric cars would sell Tesla to spread their risk. Analysts at Morgan Stanley earlier this year called out that General Motors (NYSE 🙂 – which is restructuring with a view to aggressively ramping up EV efforts – will be the auto industry story of the year, which likely to gain market share at Tesla's expense.
Tesla stock is down for the fourth straight week, its longest series of losses since May 2019, when it sold for $ 37 a share. But that was then. Here's what's going on now:
TSLA Daily
Tesla just completed a pennant bearish after completing an H&S summit. While the latter is a reversal pattern, as the price does not register continuous ups and downs, the former is a follow-up pattern: fueled by short coverage amid profit taking, as new short sellers compete.
When the newcomers drown out all demand within the pattern – either because whoever wanted to leave their shorts has already done so, or because of existing long positions – their standing sell orders do not fulfill buy orders at lower levels, outside the pattern
This creates a chain reaction that spins and repeats as short sellers increase their price by hedging, allowing other investors to sell at those higher prices, causing prices to drop again. The same short sellers can move in and out, either as a premeditated strategy or as the news develops, and they gain traction and return for a risky profit.
Note, the pennant developed right after completing the V&G summit, supporting the dynamics in which short sellers can make a profit, while dip buyers believe they have found an opportunity to discount the most popular stocks in the world. to buy. However, sometimes there is a reason that there is a discount. In other words, it really isn't a discount.
The pennant developed exactly within the 50 and 100 DMA, with the 200 DMA equidistant to the bottom. It also happens to meet the uptrend line since the bottom of March, suggesting the next range will be between 200 and 100 DMAs.
The RSI – which was never in oversold territory for the past year – is now at its lowest point for that period, suggesting a possible rebound. In addition, the volume on the pennant breakthrough was flat.
Lack of participation offers the possibility that the move was not necessarily representative of market sentiment, as the market did not participate. Presumably, perhaps as early as today, investors will be making their voices heard through their orders in response to yesterday's extensive sell-off, confirming or denying an ongoing downward trend.
Conservative traders should wait for the price to record a new low, accompanied by a spike in volume, and then wait for a recovery amid diminishing volume that meets with resistance, before shorting out.
Moderate traders would wait for the same new low, and then may wait for a return move higher, for better entry, if not further confirmation.
Aggressive traders could go short at will, provided they understand and accept the risk of a losing trade amid the increased risk resulting from reduced confirmation. Money management is key.
Here's an example:
Trade Sample
Entry: $ 650
Stop Loss: $ 700
Risk: $ 50
Target: $ 500
Reward: $ 150
Risk: Reward Ratio: 1: 3
Author's Note: This is just a trade example, for our interpretation, which projects the likely trajectory based on historical patterns. We don't know if this will happen. Nobody does. Trading is not about knowing the future, but about limiting your losses while allowing the potential for higher profits, in an effort to make money statistically in the long run. Your budget, timing, and temperament affect your results. Take small risks to learn, not to make money, until you learn how to tweak a plan for yourself. If you try to make money, you are guaranteed to lose it. Have fun trading!
