TSLA is essentially the same company it was 2 weeks ago, but the stock was trading above $180 then, and is trading around $125 now. The stock fell 14.5% on earnings, but the real shift has been the stock’s reaction to news rather than the news itself. In short, the momentum love affair with TSLA ended when the uptrend broke in late October, and the stock’s been treated as guilty at first sighting rather than innocent until proven guilty.
In such a situation, we view the technicals as far more telling in the near term for traders involved in the stock. Perhaps most concerning from a long-term perspective is the heavy volume that has accompanied the selling in TSLA over the last 2 weeks. In fact, November is on track to be the stock’s heaviest volume month since May, when the stock accelerated higher after its first profitable quarter in its history:
Moreover, the stock’s volume in November has come at an average stock price that is around twice the average that was seen in May, so a lot more notional value has changed hands in the past few weeks.
In short, some big owners wanted to get out this month. Now the blame could easily be placed on the fire risk in the Model S, and the numerous videos to that effect. It could be placed on the NHTA investigation by the government. It could be placed on the lackluster earnings report. But in our view, the real reason is that TSLA stock got high enough that sellers became more aggressive than buyers. The other reasons are not trivial, but the sentiment shift that I mentioned at the outset is likely most important.
Elon Musk wrote a blog post yesterday detailing Tesla’s mission. He highlighted what he viewed as fire risk blown out of proportion:
There are now substantially more than the 19,000 Model S vehicles on the road that were reported in our Q3 shareholder letter for an average of one fire per at least 6,333 cars, compared to the rate for gasoline vehicles of one fire per 1,350 cars. By this metric, you are more than four and a half times more likely to experience a fire in a gasoline car than a Model S! Considering the odds in the absolute, you are more likely to be struck by lightning in your lifetime than experience even a non-injurious fire in a Tesla.
Elon Musk is a smart man, and his point is well taken. So that’s that.
For us as traders though, here’s the deal – the stock has reached the $120 level for the first time since July. Momentum is at its most negative in more than a year, which usually implies some time to base. But with the 200 day ma around 107.50, and the May high around 115, we view this area as a good long-side entry, even if only for a short-term bounce. We are not pulling the trigger yet, as we’d prefer to buy a retest rather than the first bounce. But we laid out the thoughts here so that we can be quick on the trigger if/when we get an entry that we like.
So what we’re likely to do is get long deltas a few months out on any intraday selloff at 115 or below ($107 is ideal) and then look to spread those deltas on any bounce from that spot, possibly using a diagonal in December.
We wanted to get our thoughts out beforehand because the stock is crazy and we’ll likely have to react quickly. We’ll update if and when we make a move.