Don’t get mauled by the bearish engulfing pattern on Tesla (TSLA)
Discussed in this article: Tesla Motors Inc. ( $TSLA )
I want to look at Tesla ( NASDAQ:TSLA ). You can see the stocks down almost 15 percent in one day. Now here’s what you need to know. The company announces earnings next Monday, so of course that’s after options expire on Friday. It should be pretty interesting to see how the stock trades around that expiration.
This is the kind of thing that I would be careful buying on the dips. Let’s say Tesla ( NASDAQ:TSLA ) keeps going down a little bit, even if you’re buying at $100.00, which seems like a pretty nice level, you look at the weekly chart and you get really a different flavor. Now I’ve been bullish on Tesla ( NASDAQ:TSLA ) all the way up. Why, because I’ve been right? Well yeah, but it’s not me that’s right, it’s the stock that’s right.
When I see a stock moving up like Tesla ( NASDAQ:TSLA ) is, or was, I’m going to be bullish on it, so you need to be thinking about that too. Don’t think about whether you’re right or wrong look at the stupid stock and see what it’s doing. If the stock is moving up okay roll with it, let the stock move up and you be right by being long this stock while its moving up. This is not that hard; seriously, it’s not that hard.
Now, I’m looking at Tesla ( NASDAQ:TSLA ) and suddenly I’m not bullish on Tesla ( NASDAQ:TSLA ), do you know why? Because it’s not going up anymore, I’m reacting, I’m not predicting. Now earlier today when Tesla ( NASDAQ:TSLA ) was at a higher level than it was, I pointed out, in an intraday note, that the stock gapped up here, it was trading down below this last bar here. This was a bearish engulfing pattern; okay this is bearish.
When a stock has moved like this thing has and suddenly gaps up above the prior intra period high, in this case a weekly high, and then trades down and closes decisively below this last periods intraday low, this is an indication of a complete reversal of power; from bulls early in the morning buy, buy, buy to bears. And now I’m looking at this stock and this stock can move down quite a bit further. I mean the stock could actually go clear down to 75.00 or even $70.00 and there really wouldn’t be anything wrong with the uptrend, if you have the proper perspective.
But the thing is between now, and that unhappy day when the stock could fall back, this low is an earnings announcement so you can’t extrapolate too much from this chart. You can’t look at this and say, “Oh, well, it’s gone up this far, according to Fibonacci then the stock should fall down to 82.37 or whatever.” Nothing against Fibonacci, but what I’m saying is there is a fundamental event between now and when this particular move could happen.
So what I’m suggesting is that you not try to predict this kind of move, instead just appreciate the kind of risk that’s here. I would suggest just watching Tesla ( NASDAQ:TSLA ) closely, I’m not going to tell you whether to trade it long or short, I guess I could but you know you get what you pay for, right? I’m not going to give you advice to do that.
What I’m going to tell you is that there’s a lot of risk to the downside, a lot of risk. I will say this, on the daily chart I view there being virtually no risk to the upside. In other words, the stock moving back up here in the next few days prior to earnings. Now depending on what the earnings are, Tesla ( NASDAQ:TSLA ) could go up to 9,872. I mean the way this stock has rocketed up has just been kind of breathtaking, so who knows what on this stock is going to do? Short interest is really, really high on this stock so in response to, or in reaction to earnings, this stock can move really big either way.
But between now and earnings, between now and next Monday, this is a day traders stock. If you’re not a day trader this is not your stock, you need to move on. We’ll keep track of this but this is where I see it right now.