Tesla @ 252

TSLA Value Proposition

• Unique Cash Rasing through long positions
• Making a bigger sized short position by profiting on upswings

The reason for this post is because I am testing this zone as a potential area of value.  I believe in the short term, this provides some interesting price reference, especially because of how TSLA acted in March of 2017 the three weeks it spent turning around at 2/27, 3/6 and 3/13 - that is to say the origin of that rally propelled shares to near 390!

TSLA from its peak in September of last year until today dropped 137 points, and even a 50% bounce-back would bring shares to a level 69 points higher than today's low; on one hand its not fair to say that it should rocket back to 320 again but the fundamental backdrop can change just as fast. 

I have been believing this will crater, but like many moves in the markets it went past my wildest expectations. 

• Risk management and not believing in hope 
• Point of Rally origin at shaded rectangle
• The 50 period and 225 period simple MA in gold and green
• Points of closing long position at $284.57, $304.64, and maybe even $320.87

Risk Management

I don't believe in fighting trends, but this is something I have been watching for time to get in, and now is probably a good idea to think about getting some without any hope of it working out.  I don't believe its a good idea to believe hope can actually help if the trend continues.  What is most simple to see is that anything below the shaded rectangle spells much more trouble for potential optimists, so 10 points of risk for roughly 50 to 69 points of reward and with the 225 moving average acting as support its as clear as day to notice how deeply oversold it is short term.  

Support Point @ 252.12

It was so well respected that it led to this massive strentgh and quick departure of the level back in late February of last year

Converging Moving Averages

As price potentially climbs both the golden and green moving averages will eventually start coming together, thus the 225 in green would act as a potential floor and the overhead golden slope as resistance.  Yet, price has traveled so far and fast away from the $332.76 (golden moving average) that a counter-trend rally would need to persist for days and weeks before all three come together [50, 225 and price nearly connect]

Points of Long Closure

Measured moves don't always work but practically speaking they give excellent spots to lighten up a position if other traders are viewing them as potential targets.  So in our case closing 500 shares, entered at $258 and then closing them in different sized exits would mean we can close 200 shares at $284, then the second 200 shares at $304.64 and then the rest at or near the 50% retracement at $320.87

Dry Volume

The S&P 500  from the moment of the February sell off to now 

The volume bars below are telling the story of how price and volume were working together from the crest in late-January to the boring period of sideways back and filling, and today's rally attempt.

The high printed at 2878.5 was printed near 1.22 million contracts traded (very low) and then when the sellers began to pick up steam it ballooned into the volume peak at 4.714 million contracts the lowest price points showing where most of the players are trading hands.

One of the other aspects I'd like to point out is the two different directions of the trendlines on the lower volume box where (1) the line slopes down into the "slow period" or 2800 S&P 500 and the other where we begin to see a drop in price followed by stronger uptick in volume

Volume is bored by the lackluster rallies that run out of power; and becoming more excited or shows more confirmation when corrections take a deeper hold.  The coloring of the volume bars matches the daily candlestick so what is most relevant about these two shifts in sentiment are that the peak in volume 4.71m on 2/4 to 2/5 trended down to the tune of 1.67 on 3/1 right before the spike.  Volume then muddled around in the shaded oval before recently picking up again.  The recent gains in volume prints I am noting here are 1.12m to 2.76m in the past 7 trading sessions

Typically speaking we don't take exact measurements and compare absolutely a rate of change in volume (for example) 125.32% increase or decrease of 88.31% we are more concerned with the direction of change and how it looks intuitively, if volume continues to grow along side of the longer length red candlesticks then that could be the very recipe of confirming the duration, magnitude and depth of this correction in the S&P 500. 

Intra-Day Gap Fill

Gaps have a tendency to fill, and when they do it is an opportunity to profit.  This is more of a view of the S&P 500 futures than it is the Dow

Intraday, gaps appearing in the futures market are rare, and their tendency from what I have found is that they fill quicker than the other types of gaps especially for stocks.

This imbalance leads to an extreme (in yesterdays case) demand where prices were quickly bought up leading us into the same resist point where the sell off began.

Now that we are at the origin of this move down (300 points in the Dow) it begs the question if the trend that has been set is still a series of higher lows.

Printing a higher high that is at a level greater than the previous high would mean that we would need to challenge the 2750 level and trade higher from there.  For now this is an interesting point of consolidation that if it does resolve to the downside we could start looking for lower price points to (A) cover short positions or (B) create the same kind of buying opportunities that presented themselves today.  

Even on the daily view there is a minute head-and-shoulders top forming.  The wicks are above, and the buyers are slightly less enthusiastic about retracing the overnight drop.   

Dynamite

S&P 500 is in a more fragile state as it runs into potential overhead resistance

• Resist Points
• Sideways trend in 7-period Exponential Moving average 
• Lower Highs (Red)
• Crossovers (Blue)

It is very important that price closes back up above the green moving average set to 7  periods, otherwise price action would have to be interpreted as bearish.  The slope of this moving average is set to a higher rate of sensitivity and could be swayed by price movements faster than the other simple and slower mean reverting averages

The sellers were clearly overpowering buyers back in late-January where the correct first took hold.  The clearest sign of the breakout was a solid close below the first rectangle in yellow. 

The second break out box in our more recent trading range set from Feb 23rd is because the market is consolidating at a point near 50% of the correction.   

The blue sideways arrows indicate where price rose and closed above the moving average.  In this case more recently they were bullish signs, but if there is any decisive move below today's 2716 level it could spell doom for any "progress" made on the bounce made from nearly 3 weeks ago

There are still plenty of good deals at lower prices, but it would be foolish to buy into a permanent state for this phase of the bull market.  

Expansion vs. Contraction

The fractal of the S&P 500 

This fits very well with some fractal models of how expanded the rallies can become.  It is not a wave count but more of a measure of how things can move if they were to fit into this mold.  The other thing to noticed about an environment with increased volatility is how much faster the corrections move versus these supposed "counter-trend bounces"  if this is truly a bear market we would not overtake the highs at 2875.  The rally has been lucrative in the sense that a 10.3% rally is great for those positioned to the long side.  I am happy for them.  

• Measured moves instead of using other technical indicators 

Based on prior performance, the continuation of the sell off could lead us into the next trading zone which is at 2465.  It is also a giant support point.  Some buy programs would simply be triggered there. 

• Bollinger Bands
• Moving Averages
• Trendlines and the underlying volume aspect of price action

The other technical indications can be added to be more well rounded in the approach but this is just an extrapolation of what we could see going into Mid-March and spring seasonality; I prefer to keep my charts mostly bare.