A yellow light for the indexes and a green light for TSLA

By Jani Ziedins | End of Day Analysis

Nov 08

Free After-Hours Analysis 

The S&P 500 bounced between small gains and losses Monday, ultimately finishing 0.09% in the green.

While 0.09% is ordinarily nothing to write home about, adding to Friday’s flirtation with 4,700 and finally closing above this psychological level is definitely significant.

Such a record close would have been impossible to imagine only a few weeks ago when the index was threatening to crash through 4,300 support. We’ve come a long way since those lows and even more impressive is the incredibly short amount of time it took us to get here.

As scary as these heights feel, the market continues trading well. We’ve been solidly overbought for weeks, yet buyers keep throwing even more money at these record highs.

Monday afternoon saw a small wobble into the red and this counts as test for the market. If this rebound is fragile, all it takes is a small crack to break things wide open. But so far things are holding together. Now, one afternoon doesn’t mean we are in the clear. In fact, what happened Monday is far less important than what’s coming on Tuesday and Wednesday. That said, a good day on Monday is definitely better than a bad day.

If nervous owners start taking profits, that selling could feed on itself and push the index back to 4,600 and even 4,550 is on the table. While a pullback to support is a very normal and healthy thing to do, it would feel jarring given how effortless the climb to these levels has been.

Or buyers could keep throwing money at this market and we’ve only seen the start of the silliness.

At this point, either outcome is likely and trading is simply a matter of waiting for sentiment to tip over. No doubt we are close to the next routine step-back, but the same thing could have been said last week and the week before that.

We trade the market we are given and while this one will eventually consolidate these gains, but it isn’t dipping yet and that’s the way we have to trade it. As scary as this looks, there is nothing to do but keep holding and lifting our stops.

If a person is paranoid, there is nothing wrong with taking some profits off the table. It’s been a great run and we only make money when we sell our winners. Take a portion of your position off the table and let some ride. Sometimes harvesting some profits is all it takes to get a better night’s sleep.

Lift stops to the lower/mid 4,600s and see where this goes.

TSLA tumbled after Twitter told Elon to sell 10% of his TSLA stock. Some owners panicked dumped shares in anticipation of that big overhang of looming supply. That said, the knee-jerk selling was fleeting and prices are quickly bounced above those early lows.

There are lots of reasons to sell this stock, but Elon selling a fraction of his holdings is not one of them. While an academic with his pocket protector and calculator will tell us one thing, given this stock’s absurd valuations, it’s been years since this stock heeded any academic’s advice.

This is a momentum trade and the momentum is still higher. Use this morning’s lows as a stop and anything above this level is holdable/buyable.

If we get dumped out, no big deal. Be happy to lock in those profits and get ready to buy the next bounce, probably somewhere around $1k.

Of course, the stock might not even sell off and that’s why we continue holding until our trailing stops are hit. (Most nervous owners bailed out hundreds of dollars ago.)

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About the Author

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 has an undergraduate engineering degree from the Colorado School of Mines and two graduate business degrees 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.