Dan Nathan is the Co-Founder and Editor of RiskReversal.com a website dedicated to helping equity traders/investors understand the alternative ways they can express their views in the equity markets. Dan has spent the better part of the last 16 years as a proprietary equity & options trader at hedge funds and within the equity derivatives group of Merrill Lynch.
On CNBC’s Fast Money last night we had an analyst on who had downgraded TSLA near the stock’s recent highsbased on valuation. Most investors who wants to dig in on the Bear Case for TSLA will eventually be right – this is a company that has a $20 billion market cap with about $2 billion of sales on somewhere between 20,000 to 30,000 cars sold in 2013 with little earnings to show for it. This compares to GM, which has a $50 billion market cap, expected to have $157 billion in sales, and sold 187,000 cars in September alone, oh and the stock trades at less than 8x next year’s expected earnings. There is absolutely no reason to speak of valuation when looking at TSLA as an investment. There is no logical rationale and the likelihood of the stock ever growing into the current valuation anytime soon isn’t great.
From where I am sitting the stock remains a great trading vehicle though, and likely to provide some electric opportunities to trade 10-20% moves until there is some sort of fundamental change to the story where the stock finds some sort of equilibrium. Yesterday’s intra-day chart of TSLA was fairly interesting. Just as the stock looked as if it was finally going to breakdown, down some 21% from the Sept 30th all time high, it just reversed course and closed near the highs of the day.
Obviously I have no clue whether that is the near term bottom, but the reversal looks something like a “Spike Bottom” formation on fairly decent volume. For those momentum traders out there, think of it this way, Monday’s close was at the lows of the day, Tuesday the stock opened right near the previous day’s close only to drop hard throughout the day but to basically close where it had the previous day. If the pattern were to hold today the stock would open up at or above the previous 2 closes, and then continue higher.
If you caught the move yesterday off of the lows, the idea at this point would be to play for a move back to some sort of near term resistance, which in the short run, prior to next week’s earnings event on Nov 5th could be somewhere near its 50 day moving avg at about $172.50 (purple line), but with a target post earnings possibly back towards $184ish. But its go to hold $160 or all bets are off.
For those of you who think all that is a bunch of mumbo jumbo, and prefer to look down, the $160 level is crucial, and a close below puts the $140 support and the $120 support very much in play on the least bit of negative news on the earnings call. And I am not going to even suggest the $100 level that happens to correspond with the stocks 200 day moving average.
So the bulls and bears appear to be locked in a fairly epic near term battle which will likely get some resolution post the Nov 5th earnings print. On Friday we laid out a couple ways to play for those looking to make a directional play into the print (Name That Trade $TSLA: Alternating Currents?) where we detailed put and call calendars in an effort to finance the purchase of the elevated vol in the weeklies that catch earnings. The trades were hypothetical, but very soon it may make sense to sell the earnings weekly and buy something longer-dated depending on your directional inclination. Stay tuned we will be sure to update this prior to the print.