Is TSLA running into trouble?

Free After-Hours Analysis: 

Monday was a historic day for TSLA as it officially joined the S&P 500. This addition triggered some wild gyrations Friday afternoon as institutional investors scrambled to get into the stock and it surged 7% in the final moments of the day. Unfortunately, TSLA struggled to hold those gains Monday and it retreated nearly 7%.

A majority of the frantic, index driven buying is already behind us. Investors that needed to buy the stock have mostly already bought it. And speculators that got in ahead of this wave of institutional buying are starting to collect their profits. Tapering demand and accelerating profit-taking threaten to turn this into a very typical sell-the-news trade.

Investors are always looking forward and they make their trades in anticipation of the next big move. Any sensible investor gets in before the move, not after it. That means most of TSLA’s index buying occurred over the last several weeks. Anyone waiting until today to buy the stock is weeks late and hundreds of dollars short.

What comes next? That’s harder to say. This stock is not obeying any sort of logic or reason so we cannot use logic or reason to figure out what comes next. This is a pure momentum play, plain and simple. It will keep going up until it stops, nothing more and nothing less. When that happens is anyone’s guess, but just because we cannot predict the future doesn’t mean we cannot form a sensible trading plan around this stock.

If we know this will keep going up until it stops, that’s a fairly straight forward trading opportunity. We hold the stock with a trailing stop and see where this goes. Buying the bounce off of $400 was a great entry point and now that the stock is above $600, we can place our trailing stop under recent lows. As long as the stock remains above this level, keep holding and see where it goes. If prices retreat, get out and wait to buy the next bounce.

There is nothing more criminal than hitting a home run, only to allow greed to cause us to hold too long and let all of those profits escape. We only make money when we sell our winners and we always need to have a plan to take profits.

If you find these posts useful, please return the favor by liking and sharing them!

Sign up for FREE Email Alerts to get profitable insights like these delivered to your inbox every evening.

What’s a good trade worth to you?
How about avoiding a loss?
For less than $1/day, receive actionable analysis and a trading plan every day during market hours

Follow Jani on Twitter @crackedmarket