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Oct 30

Exiting Long Tesla ($TSLA)

What a ride it’s been. First the stock caught fire, then the car itself caught fire. But when it’s over, it’s over.

No matter what happens from here, Tesla has without doubt been the stock of 2013, and Elon Musk is surely a lay-up to be Time’s person of the year. This exit signal however helps underline an important point.

There is a big difference between a company, its enigmatic founder, its compelling story, its unrivaled products, and its stock. You can only trade the stock. So, no matter what feelings may be aroused by this company or its products, the final arbiter for my trading has to be price action alone, and by that measure we must now take our exit signal which will be executed at Thursday’s open. As of Wednesday’s close we are up 56.8% on the position.

Tesla ($TSLA) +56.8%. Original 5/28 entry post here. Also, this post from 7/16 gave an important update, which several people were later gracious enough to credit for keeping them in the position for far greater gains.

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There are many lessons contained in this trade, perhaps the most important one being to keep our analysis to the price action, remove any bias, and ignore noise. And God knows it got very noisy at times. At no point in this trade did we need to reason the price movement, or if TSLA’s earnings, or lack thereof, could possibly justify such a valuation. We are in the business of identifying strong trends, riding them, and exiting when the trend is over for our particular risk parameters and timeframe. That time is now. Receiving this exit signal doesn’t have any other implications, it isn’t in any way predictive of future price movement, $TSLA could literally do anything from here. I’d be happy to re-enter should it set up again, but for now I have to stick to my process, my rules, and step aside.

 

 

9 comments

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  1. Adam

    I still remember all the calls for 200 last earnings. I took a screenshot of a stocktwit that said that it alone was going to pay for the poster’s childrens’ college someday. I tried to short it once. Tried to short several momentum stocks. That didn’t end well.

    It’s strange to see such a small dip below support for such a volatile stock. Even after hours it has reclaimed 160. I wonder if other trend followers will exit with the discipline as you have.

  2. devd12

    That is one heck of a trade. By following your blog, I hope to acquire the trading discipline of your level.

    I have seen several people identify and trade based on various patterns applied to the price. It looks like a falling wedge from the peak to now. What are your thoughts on patterns formed by the price?

    1. Jon Boorman

      Thank you. I think the trouble with those kind of patterns is people tend to go looking for them and they see what they want to see. As a technician I can easily come up with reasons why it’s a buy here and why it’s also a sell. It depends on your perspective and your timeframe. The price pattern also looks like the Great Wall of China from 30,000 feet, but that doesn’t make it actionable, at least not for me. I try to keep it as simple as possible sticking to price and trends for my timeframe.

    2. Adam

      I see the wedge too, but I don’t know how much to trust chart patterns. Say it does break upwards when the wedge lines cross, what then? Where’s the exit? Do you wait for a bearish pattern to emerge? Get out when it gets to 185? Maybe just 170 since that’s when one could say it broke a neckline of a HnS. Make sure you have a plan.

  3. kevin

    Can I know how you arrived at the $160.7 price below which you were sure to exit TSLA?

    1. Jon Boorman

      It was a trailing stop, and was the previous swing low from 9/9.

  4. John Kelley

    Jon,

    Can you identify the parameters that would create a new set up for going long again? Would the drop on 7/14 be of any significance in reestablishing a new set up?

    1. Jon Boorman

      A new high, or breaking out from a multi-week consolidation, indicating a resumption higher.
      Not sure how 7/14 plays any role, that was a weekend, and the price around that time was below $130. It’s possible if it continued to weaken it could establish some support there, but again, we’d be waiting and looking for a newly established trend to re-enter, I buy on strength, not weakness, so I wouldn’t be buying at a potential support level.

  5. Adam

    Do you think he just took the exit on a whim? He’s had the stop set at 160 for a while now. Sheesh.

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