Here’s your new post-earnings trade on Tesla ($TSLA) – October 21, 2021
TSLA
I want to go through Tesla ( NASDAQ: TSLA ). I have been talking about this for a bit, for a while in these Free Charts, I think we have actually been doing pretty well. Yesterday I suggested to our members, we have had a trade going for quite a while, it’s always risky to hold a stock through earnings, particularly a stock like Tesla ( NASDAQ: TSLA ), which does have a habit of selling off in response to earnings, particularly if the stock has had a run into earnings. It is kind of like, buy the anticipation, oh, here’s the earnings, sell the news, and then the stock drops, that’s typically what happens.
It actually did that this morning for like half a cup of coffee. I want to just describe the reasoning here for how we traded this. We had a really, really nice trade on, still do, and my suggestion was, prior to earnings, if you want to guarantee that you are right, then close half of your position for a good profit. That means that if the stock rallies you are in, in half, and you are glad that you only took half off the table. You’re glad that you kept some on.
On the other hand, if the stock tanks that’s okay because you took half off the table and you are saying, alright, I’m long the rest but I am still profitable on the trade because of the profits that I took yesterday. Well, this kind of gave us the best of both worlds because we take some off the table prior to earnings, leave the rest on, and then this is what happened to the stock. I’ll go to a 5-minute here, actually, I will take this down to a 1-minute chart because it’s that important.
Okay, here was yesterday, and then the stock gaps down here, but it was only a percent maybe, not even that. Yes, it gapped down 1 percent. And so if you are thinking as opposed to just assuming that what happened before will happen again. If you are thinking, this is going to be your thought process, you are going to say, oh, okay, Tesla ( NASDAQ: TSLA ) is down, now, it’s only down about a percent. Typically, on a stock like this, if there is truly going to be selling it is not going to be down by just 1 percent, it is going to be down by more than that.
So then my question would be, oh my gosh, my stock is down 4 or 5 percent pre-market. Maybe this is a good time to be loading up. Maybe it’s a good time to be buying. So that is what you would be thinking if the stock really tanked. But then, of course, you are dealing with all the supply from people who didn’t sell prior to earnings and now they are going, crap, I just got to get my money back. So you are kind of chewing through, you are soaking up a lot of supply from regretful shareholders, the folks that wished they had sold prior to earnings because now they’re down another 4 or 5 percent from the close so they are going to be selling.
Okay, fine. Well, this is a different situation here, and listen to me. I’m giving you pearls, these are pro tips here. I am just telling you, when a stock like this, that is supposed to trade-off, it’s supposed to trade lower and it doesn’t, that’s a big powerful signal. It’s one of these things where you have to look at it and say, okay, if the stock was supposed to do one thing, everybody knows it, but then it’s doing another, hey, I have got to sway with that wind. I have got to be a willow and say, alright, I think it’s time to buy this stock. And so that is what we did.
I actually put on a call trade pretty close to the open here. And the reason is because the stock only gaps down by 1 percent and then it almost immediately starts running higher. It stayed down at this level for less than a minute and then it started running up. So when you see that this is what I am saying, the stock is supposed to sell off, it’s been really, really extended so definitely don’t buy, don’t buy, don’t buy, it’s too extended. And then when the stock corrects a little bit and then it starts going, that is a powerful, powerful move. That’s a real powerful move, it is a buy signal. It’s not the typical buy signal where hey, you’re looking for a stock that is in consolidation. It’s in kind of a squeeze here looking for the bottom of a base and we are trying to buy it just as it starts to come out, this is a faster trade.
This is a trade where you look at this and you have to take action right away and you have to take it in a big way and that is how you are going to be making money on these trades post-earnings. So you are making money on the run-up. You take half off the table. The stock comes down, you look at it and, frankly, then you are actually making another trade. You could say, well, I am just going to add to the position that I have. And that’s fine, you could do that. I always look at these, though, as kind of day trades where I am not going to tolerate a loss in my new trade even if my average cost basis, based on the stuff that I kept over earnings, even if my average cost basis is still lower.
I don’t want my add, my second buy, I don’t want it to hurt my cost basis. I want it to actually help the profit in the stock. So if I buy it wrong I need to get the hell out right away. That’s not the case here. The stock hits $900.00 in a heartbeat and then it peels off. So we took partial profits on our call position and I will tell you exactly what I am doing. I am looking at 900.00, and if that level gets blown through tomorrow, maybe Monday, but the way this is trading, probably tomorrow. Then I think we’re in for another leg higher.
So look, I am not a “Teslonian”, where my religion is wherever Elon Musk is. No, but I am a pattern guy and I see this pattern, I understand it, and I think the stock is poised to go higher. But here’s the thing, you can say, oh, this is an ugly chart. Let me zoom out to a weekly, boom, this is not an ugly chart, this is a pretty chart. This is a stock that has been in a base-building process for this entire year. And so I am just telling you, this stock is ready to keep going. My bet is, that by the end of the year, I’ll say it, that the stock is going to be at least $1,000.00, probably even $1,100.00.
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