Trader's Daily Notebook: Don't Think Long-Term on Tesla

 | Jul 06, 2017 | 7:00 AM EDT
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Stock quotes in this article:

spy

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tsla

Wednesday's E-Mini S&P 500 futures auction, while more active than I would have expected given the number of traders enjoying a midsummer vacation, still only traded around 960,000 contracts. My inclination is to avoid drawing too many broad market conclusions ahead of Friday's monthly employment report, and instead take a slower approach to short-term trades, especially when it comes to technology.

SPDR S&P 500 (SPY) -- Daily
 

A quick study of the SPDR S&P 500 (SPY) daily chart above reviews how inconsequential Wednesday's session really was. On the bullish side of things, we're still trading above that pink upper trendline (beginning on March 1) and the 50-day moving average (MA). On the bearish side of things, we're beneath the 20-day MA and bouncing around with relatively little leadership. The net result is anyone focused on a timeframe measuring more than a couple of hours acquired no worthwhile information at the end of Wednesday's auction. 

One point worth making, especially for folks who get overly hung up on the specifics of short-term moving averages, is the Es actually closed a bump above its 21-day exponential moving average (EMA) on Wednesday (not shown on the chart above). Perhaps this is a good example of how and why we use moving averages as general guides, and not hard and fast trigger criteria.

While I've no doubt everyone saw the decline in shares of Tesla (TSLA) , I thought I'd share a chart and a support zone I'm watching since several readers asked if there was an area I'd consider getting long the stock. Now, before anyone emails me their valuation thesis on the stock (be it bullish or bearish), please keep in mind my trading timeframe on a name like this would likely be measured in days, not weeks, months or years. I think Tesla's technology is cool, and am amazed by CEO Elon Musk's creativity. But at this point, I've no intention of including shares of TSLA in my long-term investment portfolio.

Tesla (TSLA) -- Daily
 

Tesla had a bad day Wednesday thanks to a number of issues hitting all at once. But given the timeframe most of us operate in, which tends to be measured in hours or days, let's not worry about anything but the technicals.

Shares of Tesla have surged since breaking above the 50-day MA in mid-December 2016. Since that time, the stock has only closed beneath our intermediate timeframe moving average a handful of times. That is, until Wednesday. With the stock breaking back under the 50-day MA, and on huge volume no less, my inclination is to avoid picking a bottom in the stock until momentum reverses between 280 and 295.

While I've no idea if the stock will ever make it into the $180s, where Goldman Sachs believes it should be trading, I can appreciate an argument for short-term traders stalking a buyable bounce as the April lows are probed, and the mid-February to late-March breakout level is tested. We'll circle back to this idea as price nears $295, or the upper boundary of the support zone I'm watching.

Moving on to Thursday's auction, we'll begin the day with a focus on 2431.25. An open above that figure that holds the opening print has the potential to extend toward 2438.25 before responsive sellers begin working their way back into the pit. Continued buying above 2438.25, something I don't place particularly high odds on at the moment, paves the way for a drive toward 2445.50. Again, though, I'm expecting responsive sellers to turn more aggressive if the upper 2430s are tested during the early hours of Thursday's auction.

15-Minute S&P 500 Futures Volume Profile
 

Rejection from 2431.25 encourages two-way rotation toward 2426.50 and Wednesday's 2426.50 value area low. The primary support zone we'll be watching during Thursday's auction, and the only area I'd be watching if I wasn't scalping, is 2419.75 to 2422.25. If buyers want to prevent another test of the big figure (2400), it's now imperative that we continue to close above 2420.

Any trading or volume profile related questions can be posted in the comments section below, emailed to me at parkcityyeti@gmail.com or posted to my Twitter feed @ByrneRWS

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