TSLA is one of the big 5 momo stocks, it looks exactly like the broad market yesterday with the symmetrical triangle which Technical traders have been taught over a century to interpret as a bearish consolidation/continuation with the directional bias coming from the preceding trend, which means we know there's a VERY high likelihood it gets gamed (these patterns did use to work by the way before discount online brokers and the flood of new traders embracing Technical Analysis which was like Voodoo analysis previous to the Internet revolution).
In any case, we were expecting this upside breakout yesterday just because technical traders would see the market wide triangles and expect a downside continuation, I just had hoped they might drop prices below the triangle first to draw in some new shorts and then reverse it to give us more upside momentum on a squeeze, plus it would have allowed for a bigger base footprint (bigger than a day), but all of that tells us something about the market (I'm leaning toward yesterday's accumulation being more about the weekly op-ex pin and of course the VIX Futures scenario we've been waiting on for 3 weeks now I believe?
OK, here's what TSLA looks like on the charts and where we might have a couple of potential trades.
This is the daily 3C chart, one of the strongest underlying trend timeframes we use. To the left you see a YEAR long accumulation period,
remember I showed you the homebuilders being accumulated for a year- a year and a half right as the Tech Bubble was popping, then housing leads the next bull market with many of those stocks making 2500%.
In any case, we have stage 1 base/accumulation during 2012, stage 2 Mark-Up/confirmation during most of 2013 and we are in to distribution in to the higher high through 2014. Like I said, there's a lot worse out there, but if you recall my analogy about "Waves and the tide" in explaining a bit about Dow Theory, the tide is probably the biggest factor in what TSLA does moving forward, I'd say the market's overall direction is responsible for about 65% of the gravitational pull on TSLA on any given day with the Industry group coming second (in a healthy market it's a lot stronger influence than in this market).
This is where most traders go wrong, they look for stocks to buy or short, you start with the market and what it's most probable direction is, then you look for assets, not the other way around.
Point being, there is some distribution here, not as bad as many of its peers, but enough to send it lower when it comes to primary trends.
I double checked several longer timeframes and this is the 4 hour which as you know is a very strong timeframe for underlying trends, you can see clearly distribution in the same basic areas, we have a little more detail, but the higher high was definitely used for the demand it creates to sell in to- again, institutional money are in a tough spot filling orders compared to us, we can get in and out and barely budge the market for more than a few seconds and we don't have predatory HFT's on our butts either (the Iceberg hunters), they can easily drive a position against themselves because of their size, thus a breakout to a new high gives them demand they need to sell in to.
Again, point being it looks like distribution in to demand and higher prices.
The 60 min chart alone is more than enough to trade an Intermediate trend so it's very strong as well, you can see a smaller accumulation area in white with a positive 3C divergence and then there's NO confirmation on the run to new highs, more evidence that run was used to sell in to. We also have a relative negative divegrence at the red arrow which is telling us the same thing.
The 15 min chart is just a more detailed picture of what we see above, but to the far right, even though 3C is in a leading negative position (distribution), there's a small relative positive divegrence at the white arrow. Here's a closer look...
Here's a closer look at the same 15 min chart, distribution at the top, in line at the green arrow on the downturn and a relative positive divegrence at the white, this is a bit bigger than what we have seen across the broad market so TSLA may be more than the 1 -day accumulation we saw yesterday, otherwise I wouldn't have brought it up as I'm not chasing assets trading roughly with the broader market.
This 5 min chart gives us more detail, you can see the same triangle yesterday as the market/averages and most assets had in place and a leading positive divergence so I think there's more to a TSLA move than just a quick op-ex pop (or whatever this turns out to be-possibly the VIX futures move we were looking for).
So the set up...
The 3 min intraday was flying in a leading positive yesterday at the sym. triangle, I'm surprised they didn't head fake it and wonder if they might still with a move below the apex which would be a gap fill as well, in any case they knew the market was going to pop early today and were in place for that short term on the 3 min as that's a strong leading divegrence yesterday.
The 2 min chart...
We have pretty good confirmation of the move up, but there are some intraday negatives forming now, if TSLA is just going higher than I'm not chasing it and I'll wait for these charts to go negative and short it at higher prices and less risk, but if it pulls back to at least a gap fill, maybe even a head fake move below the triangle and we still have strong accumulation on that pullback, I'd enter TSLA long or with calls depending how deep it pulls back.
I'd set price alerts if you are interested in the possibility of the trade (I will) and double check 3C if we do get that pullback in to the gap at minimum.
Otherwise, we'll let it do its thing and look for a short entry as the 15 min positive turns negative. The positive divergences are pretty nice here on a swing basis, but the problem is the same as the market yesterday, the footprint for the reversal process is very small, you can't stack a bunch of blocks really high on a small base, it's the same with the market, that footprint in the reversal process counts.
For now, it's patience and setting alerts, double checking underlying action, either way
we'll get this one.
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