We have been optimistic about Tesla (NASDAQ :)}} since August. And even in September, when stocks got underway, we continued our positive call.
But now we think that electric car manufacturers' stocks are heading for a profit correction.
Mad Money TV personality and host Jim Cramer argues that young investors believe in Elon Musk. Tesla & # 39; s founder and CEO has been referred to by these investors as the new “Steve Jobs,” who appear willing to buy TSLA stock at any price.
Young investors are also apparently largely responsible for the massive stock rally since March. Cramer has even gone so far as to say that perhaps we should seek better advice from these young, largely amateur investors than from investment professionals.
Of course, the professionals have turned quite bearish towards the Palo Alto, California-based electric vehicle manufacturer. JPMorgan recently wrote about Tesla, it is "not only overrated, but also dramatic".
The investment bank claims the "buy-it-rumor, sell-the-dip" scenario for the company's December 21 incorporation is still in effect. The bank claims that after the stock is up 660% this year, it's time for the high-flying stocks to come back to Earth. Indeed, JPM guidance expects an 86% retracement, which would bring the stock back to $ 90 – an emergency landing rather than a soft leg lower.
While we agree that the stock's current price is too high, we don't expect it to fall below $ 400 for the time being. If the market generally collapses due to the current geopolitical headwinds, Tesla will almost certainly be dragged down as well.
So why do we expect Tesla to fall to the $ 400 level?
TSLA Daily
After Tesla bulls absorbed all available stock within a symmetrical triangle, they raised their bids above the range in search of additional supply. {{art-200545029 || As predicted, this set in motion a chain reaction to a continuous advance.
By liquidating positions within the triangle the implied goal has now been achieved. With the price finding resistance at the top of a bullish channel, in the form of a powerful bearish engulfing pattern – created when the price opened higher on Wednesday but closed below Monday's price action, demonstrating full bearish retaliation – already has happened stretched out through the triangle, we feel it is time for a withdrawal.
The RSI, after causing a negative divergence, has doubled and the MACD is peaking.
Such a take-profit correction could push price back to the bottom of the rising channel, where the scale shifts to demand. If the price is falling at the same rate it has gone up, that 68 degree angle would converge with the channel bottom above $ 400, which just happens to be exactly where the apex of the triangle is.
Traders who remember the stock's recent $ 250 surge in only about 3 weeks are likely to dip at that point.
Trading Strategies
Conservative traders must wait for the price to make a full landing at the bottom of the canal, including staying there and waiting for a fresh start before they risk their hard-earned money.
Moderate traders would be content with evidence of accumulation, even if the price did not return all the way to the channel demand line, or if it did return all the way, they can buy the dip without waiting for confirmation of support.
Aggressive traders are now likely to go short to get quick, hard profits within the correction. However, as this stance runs counter to the prevailing trend, it is critical that you commit to a tight money management plan.
Here's an example:
Trade Sample
Entry: $ 625
Stop Loss: $ 650
Risk: $ 25
Goal: $ 425
Reward: $ 200
Risk: Reward Ratio: 1: 8
