I am, as I have said here many times, a contrarian trader by both nature and training. I have been in and around markets for forty years and one of the first things I learned was that as useful as following momentum can be in intraday trading, the longer out you look, the more beneficial it is to go against conventional wisdom. That is why, even though it looks to be the worst possible time to buy TSLA, with the stock having just hit its lowest point in two years and seemingly in freefall, I am doing just that.
The chart certainly isn’t encouraging at first glance, with a dramatic downtrend resuming after a weak attempt at a rally. However, the recent drop took us to a level, marked by the blue line above, that held on dips last year and may well be a significant support level. The technical picture, therefore, is not as bad as a cursory glance might suggest. The fundamental situation is similar in the sense that the first impression is negative, but a deeper look suggests that things may be about to turn.
In a general sense, the Fed and other central banks around the world are squeezing hard, trying to combat inflation, and Jay Powell has said that he is prepared to risk a recession in the US to do that. The assumption to this point has been that he will have to do just that, and if he does, EVs will suffer. They are generally more expensive than the equivalent, gas-powered vehicle and are more appealing with high gas prices. A recession would curtail…
I am, as I have said here many times, a contrarian trader by both nature and training. I have been in and around markets for forty years and one of the first things I learned was that as useful as following momentum can be in intraday trading, the longer out you look, the more beneficial it is to go against conventional wisdom. That is why, even though it looks to be the worst possible time to buy TSLA, with the stock having just hit its lowest point in two years and seemingly in freefall, I am doing just that.
The chart certainly isn’t encouraging at first glance, with a dramatic downtrend resuming after a weak attempt at a rally. However, the recent drop took us to a level, marked by the blue line above, that held on dips last year and may well be a significant support level. The technical picture, therefore, is not as bad as a cursory glance might suggest. The fundamental situation is similar in the sense that the first impression is negative, but a deeper look suggests that things may be about to turn.
In a general sense, the Fed and other central banks around the world are squeezing hard, trying to combat inflation, and Jay Powell has said that he is prepared to risk a recession in the US to do that. The assumption to this point has been that he will have to do just that, and if he does, EVs will suffer. They are generally more expensive than the equivalent, gas-powered vehicle and are more appealing with high gas prices. A recession would curtail spending on “luxury” goods and force the price of oil, and therefore gasoline, lower. However, as I have pointed out over the last couple of weeks, a recession is starting to look less certain in the US.
The continued strong jobs market alongside a slowdown in the rate of price increases, something confirmed by Thursday's better than expected CPI report, suggests that Powell’s now abandoned belief that inflation was “transitory” could turn out to be true after all. It could be that a large part of it was down to supply pressures and that, as they ease, the need, or at least the desire, for draconian rate hikes will disappear.
According to the headlines, though, whatever happens in the broader economy, the situation at Tesla is bad. Founder and Chairman Elon Musk tweeted out a while back that he intended to buy Twitter. The fact that the proposed buyout price was $54.20 had some questioning the seriousness of the offer, given that “420” is frequently used as a reference to marijuana in the US, but whether it was serious or not, very public arguments and negotiations ensued, and Musk now owns the social media platform.
That, according to the doomsayers, will be a major distraction, and a suck on resources that could otherwise benefit Tesla. One can only assume that those saying that are unaware that while building Tesla, Musk has also headed up a space project, a tunnel company, and a solar panel business. Distractions don’t seem to be an issue…
What could be relevant, though, is that we found out in an SEC filing this week that Musk has sold another $3.9 billion of Tesla stock recently. Normally, a founder and insider selling a lot of stock would be a negative but, in this case, it is obviously prompted by a need for cash to close the Twitter deal, so isn’t an indication of a lack of confidence. In fact, if anything, the fact that some of the recent heavy selling can now be attributed to that and is over could be seen as a good thing.
The thing about contrarian trading is that it skews the odds in your favor. If everyone that wants to sell TSLA has sold, then even bad news will result in less of a downward move. Conversely, if there is good news, the scramble to cover shorts and re-establish long positions will exaggerate any upward movement. So, with the headlines around TSLA all screaming doom and gloom and with the stock having reacted accordingly, now, at what looks like a dark time, is actually the ideal time for someone with a contrarian bent to begin picking up the stock, so that is what I will be doing.
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