You have to be living under a rock if you haven’t heard how hot TSLA is right now. The buying frenzy got so heated today the stock surged 10% in just a few hours. What triggered today’s excitement? Some no-name analysist raised his price target. (The important thing to remember about analysists is if they could trade, they wouldn’t be analysists. Think about that next time you are tempted to follow their advice.)
If only we could have seen this surge coming before it happened. Oh wait, we did. Back on December 19th, I told readers to expect something big out of TSLA as it challenged resistance that has been holding the stock back for nearly two years. Either the stock was going to smash through resistance, or it was going to get beaten back for the umpteenth time. Either way, this represented a golden trading opportunity. I suggested readers consider buying the stock above $390 and shorting it if it fell under $390. It doesn’t get any more straightforward than that.
That said, this trade turned out even easier than I expected. I figured the stock would stall at resistance for a little while before making its decisive move. Nope, it was in too much of a hurry. It smashed through $390 resistance and never looked back, making a quick 35% for anyone who was paying attention and willing to take the risk.
But now that the stock is 35% higher, would I consider buying it here? No way in hell!!! Risk if a function of height and this stock is freaky scary at these levels. I don’t care about the company’s fundamentals or any of that stuff, but I know trading and crazy surges like this are not sustainable. Expectations have gotten so high, it would be nearly impossible for the company’s earnings report to exceed them and send this stock even higher. We buy when everyone doubts the stock, not when it is making front-page news across the entire internet.
If a person was lucky enough to jump aboard this bandwagon last month, don’t get caught up in the hype. At the very least, form a plan to get out. Whether that is taking profits proactively or following the stock higher with a trailing stop. Or even better, a little bit of both. And even more important, if someone missed this move, it would be both foolish and reckless to chase the stock at these levels. If you missed it, you missed it. Don’t worry about it. Another trade with a far better risk/reward will be along any minute.
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Tags: S&P 500 Nasdaq $SPY $SPX $QQQ $TSLA
Jani Ziedins (pronounced Ya-nee) is a full-time investor and financial analyst that has successfully traded stocks and options for nearly three decades. He earned a B.S. in Mechanical Engineering from the Colorado School of Mines and an MBA and M.S. Marketing from the University of Colorado Denver. His prior professional experience includes engineering at Fortune 500 companies, small business consulting, and managing investment real estate. He is now fortunate enough to trade full-time from home, affording him the luxury of spending extra time with his wife and two children.