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May 27

Entering Long Tesla ($TSLA)

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?

AlphaCapture

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.

 

 

8 comments

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  1. Doug Klein

    Jon, thanks so much for pushing us to get into stocks like this. I took a quick look at the chart and almost freaked out at the overbought nature of it. But I held my breath and got in after the market opened at 101.93. Now it’s up almost 9 points. i have been only trading your portfolio since May 1 (wish I discovered it when you opened in March) and did manage an entry in MCHP and CERN. I have been eyeing the big winners from March and have been tempted to enter but am trying to stick as close to your entry points as much as possible.

    Thanks for offering this incredible for free. If you decide to go to a pay only membership based site, I will be along for the ride. This is a huge help for people who are working VERY full time. Thanks a million

    1. Jon Boorman

      Thank you Doug that’s very kind, thanks for reading and taking the time to comment.

  2. Kevin Li

    Do you maybe think that the market sentiment for this stock is possibly too high? Is this the right entry point?

    1. Jon Boorman

      I can’t quantify sentiment on a stock, I just go by price. You can’t know what is ‘too high’ because you don’t know where it will go. Trend following often involves buying highs that subsequently turn out to be anything but.

  3. Newtopips

    HI Jon,I am just wondering, what is the exit plan for TSLA? I thought you would be exiting when it closed below 50 day MA yesterday which is one of the indicator I saw you are using. — Thanks

    1. Jon Boorman

      Current stop on $TSLA is a close below the 9/9 level of $160.70. Exits are breaks of previous support or pivot lows, making a new lower low, ATR stops. The 50-day can sometimes help confirm those moves but a break of the 50-day on its own wouldn’t trigger an exit, plenty of examples where a stock can be below its 50-day but still be in an uptrend.

      1. Newtopips

        HI Jon,
        Thanks for the details. I see 9/9 low as 158.51 and closed at 163.12 and on 9/10, I see low as 160.57. So, should we use 158.60 or 163.70 as stop.

        Thanks

        1. Jon Boorman

          I have the 9/9 close at $160.70. If it makes a clean break of that I’ll exit at the next day’s open. When I say ‘clean break’ it’s because if it were to close at $160.69 that’s so marginal it’s as good as holding that level, you have to use some common sense, it’s never an exact science. In a lot of cases when the game’s up you know, and I could be wrong but I suspect given the type of attention TSLA attracts if/when it triggers an exit we’ll know about it, it will probably be unequivocal and we won’t have to ponder the intricacies of whether it’s a true break or not.

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