TSLA has been one of the most controversial stocks this year. There have been some serious doubts about Elon Musk’s ability to get the company profitable in the future. TSLA surprised everyone with their earnings results (or at least how the market interpreted them), and the stock had a huge squeeze last week.
Despite all of the concerns behind the fundamentals of the company, the stock is approaching all time highs near 400’s. Musk added more fuel to the fire by saying he is considering taking the company private at $420 a share. All this news created some great momentum in TSLA stock, and we had some great day trades on it. Here is a video recap of how we traded TSLA last week:
HUGE Short Interest
TSLA was on my radar last week after it gapped and it ran in response to better than expected earnings results. TSLA has a enormous amount of people short the stock, with over a quarter of the float short, according to shortsqueeze.com. This means when the stock gaps up and breaks out like it did last week, there will be a lot of people underwater and possibly looking to exit their position.
Many people are daunted by the share price of TSLA, and don’t day trade it because they perceive it to be too expensive. The share price of the stock doesn’t matter when you are looking at something to day trade, its the range it has. It has a 20-30 point range on some days. Even if you only by 50 shares of it and you only capture 10 points of the range, you will still make $500.
VWAP Pullback
The VWAP pullback was the setup we used the other week to trade IRBT. We used it again to get a low-risk high reward entry on TSLA. It is one of the best setups to use for afternoon trading. I missed the opening move on TSLA, and I didn’t want to chase it. I finally got the pullback to VWAP and I took a long at around $360, and sold it on the spike towards $370. Unfortunately I didn’t hold any shares through the new halt! Learn more how to trade VWAP pullbacks in this article here.
Always Respect Price Action
TSLA in the past several years is a great example of the importance of respecting price action. The company is not profitable, and there are reasons to think that the company may never be profitable. There is a good fundamental reason to be short the TSLA stock. But there is no technical reason. Take a look at its weekly chart:
The stock is in an UPTREND. You can see how every dip gets bought up. You don’t short stocks in a strong uptrend, at least for extended periods of time. Wait for the backside and join the trend, instead of trying to pick a top. There are plenty of junk companies that continue to run despite having questionable fundamentals. You cannot short something just because it has questionable fundamentals. You need to align it with a technical pattern, so you know there will be a high probability of there being more sellers than buyers so that the stock will depreciate in value. Not respecting price action as a short seller is the easiest way to blow up your trading account.
What are your thoughts on TSLA? Tweet me and let me know.
