Turn out the lights, the party’s over for Tesla ($TSLA). Bulls have been having their way with this stock for quite a while…but now it’s the bears’ turn. (November 09, 2021)
TSLA
I have been following Tesla ( NASDAQ: TSLA ) all the way up so I think It’s only right to declare victory or at least to sidestep defeat, so let’s just get to this.
Something that I learned a long time ago was, if you are looking at Bollinger Bands there is this thing called the fishhook. How do I know it’s called that? Because I’m the one who made it up. When I was working with John Bollinger about 20-years ago, just shortly after his excellent book “Bollinger on Bollinger Bands” came out. I was mentioning this to John and I think he kind of said, “Hey, if the bands kind of peak and start coming together this is what it means, and all that.”
Anyway, so at that point, I said, “I look at it as a fishhook.” These Bollinger Bands are squeezing and then they start expanding as volatility, it goes one way, it starts expanding so far away from this 20-day moving average that these bands are really, really wide. And the reason they get really, really wide is, that they reflect standard deviation and standard deviation, here 2 standard deviations above and below where the stock is, they have to be equal.
So if a stock is 5 percent or 15 percent above the 20-day moving average it is going to put the Bollinger Band wherever it does, the upper band. And the lower band is going to be kind of the mirror image of it. So I just said, “You know, it just kind of looks like a fishhook to me.” And John kind of looked at me, he doesn’t say much but when he does talk you really got to listen. He is one of the smartest guys I have ever met. He just kind of looked at me and went, “Huh”, and that was the end of that. Okay, but I still call it a fishhook.
What this typically reflects is, when it’s on very, very wide Bollinger Bands what it reflects is, that there is going to be a pause or even a downright reversal in the trend. So here it’s all good. Then when you see this, that’s the first indication that maybe there is a little trouble in River City. The second day up, even though the stock’s closed back up above 1,200.00, it’s still kind of hooking up a little bit, a little more, and a little more.
And so this is a good indication that the momentum is starting to get tired, not that it’s going to reverse or anything but it is just starting to get tired. And then definitely this following day, which was the 8th, yesterday, we see a continued fishhook. And then there is all this news about the flying monkeys on Twitter agreeing with Musk, that he should sell 10 percent of his stock or something stupid like that. And that is all just a pretext for something that he wanted to do anyway.
Why would anybody on Twitter say, no Elon, hold your stock, get even richer, we love you? People are going to say, sure, sell it, for whatever reason. Curing world hunger, satisfying some debt that you incurred when you used all your stock for collateral, whatever, it’s all good. But this one news item, boom, does this. And so I would say, it is partly a news item and just partly technical. This stock was way overextended. It had already been on the decline and so all it took was one little stupid news blurb and that was the end of that.
My point is, whether or not “Elron” sells his shares, this is now a broken stock. I don’t think this is the ultimate high, I think it ultimately goes higher. This was a big move, 50 percent or so in this. And so now that the stock has peaked and is falling, what we are really going to need to see happen is some type of consolidation. Maybe it will be there, maybe it will be down here, or down here. It could fall back this low and there would be nothing wrong with the uptrend. It hits the 50, the 50 is going up that way. The stock rebounds and starts moving again.
So you can’t look at this and say, this is the end, turn out the lights the party is over. You have got to get out of Tesla ( NASDAQ: TSLA ). If you are trading, absolutely, you need to be out of Tesla ( NASDAQ: TSLA ). You needed to be out of Tesla ( NASDAQ: TSLA ). But if you are an investor, frankly, you are looking at this as an opportunity to maybe buy some more. You see this in a Phase 1, 2, 3 format, the squeeze here, Phase 1 is the extension. Phase 2 is the pullback. And then what we want to see, ultimately, is a Phase 3 move higher. We have seen this a gazillion times before, and so this is what we need to see in Tesla ( NASDAQ: TSLA ).
The company has actually got (I am kind of grimacing when I say this), the company has actually got pretty good fundamentals. I would say, relative to what they used to be, really good fundamentals. You can look at that growth story and also see all the cash that they have on hand and say, well this company now has a pretty big war chest to do what it wants to do. I actually like the company. I like the stock, I like the long-term prospects. But I also like to know the fact that this is a weak stock. The bloom has come off the rose right now and if you are long, you’re wrong. You’ve got balls, that’s for sure, but you are wrong to be long.
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