I have until now been a spectator in the blood sport that is watching $TSLA shorts get destroyed. Now I find I have been called to serve. I got a signal late Friday to enter long at Tuesday’s open. It’s easy to see why.
Long Tesla ($TSLA)
Regardless of what your story is in this stock, take off the name, take off the price scale, and what do you see? A stock in a strong uptrend, that suffered a reversal from its highs, instantly regained it, then steadily consolidated back to its 10-day EMA before moving smartly to all time highs on increased volume. What’s not to like?
Technically, the answer is nothing. I guess you could say it’s overbought but then you know the short shrift I’ve given that as a reason not to like anything in an uptrend for the last 4 months, overbought can remain so for a long long time. Fundamentally, I’m sure there’s a whole host of reasons not to get long, and I’m sure they’re exactly the same ones as when it was half this price just 4 weeks ago.
No, the only reason NOT to do it, is if once we’ve identified the point at which we’re wrong, it would involve taking too much risk for the potential reward. The fact is, the reward is pretty hard to quantify, it always is with something at all time highs. We have the prospect of further short-covering, and I do love knowing those ‘guaranteed buyers’ are sitting there squirming watching every tick, but what about the risk?
Realistically, what tells us we’re wrong? Let’s just play around with the numbers a little. The most significant daily and weekly closes are at $83.24 and $76.76. The 10 and 20 EMA’s are also near those respective levels. So, assuming we open near to where we closed around $97 (and that’s a big assumption), and we use a closing stop below say $76, we know our stop is at least 20% away. That’s pretty big. I’m not against those kind of stops per se, because the reality is with that wide a stop your position size just ends up being smaller. But it also means it needs to have a realistic chance of going up 40-60% from here to make taking that risk worthwhile. Could it do that? Well, yes it could. I only say that remembering Volkswagen in 2008. Although the circumstances were very different, that’s kind of the point. They always are, no-one knows how things will unfold in these situations, but you have to think the actions of those shorts is an unknown variable arguably to our advantage.
I’m not much good at the prediction game, hence why I’m a trend follower, but I’m guessing that if we get an exit signal it will come before we revisit that $76 area, possibly from some kind of volatility event or high-volume reversal, anything that’s a game-changer. But let’s do what we always do, stick to our rules and our process.