Chart Of The Day: Hertz Momentum Also Buoyed By Tesla Order
Investing.com | Oct 26, 2021 09:34AM ET
When car rental and leasing company Hertz Global Holdings (OTC:HTZZ) announced yesterday it had ordered 100,000 Tesla vehicles for delivery by the end of 2022, it literally moved markets. Not only did shares of Tesla (NASDAQ:TSLA) jump more than 12%, the carmaker's stock was catapulted to a new all-time high, lifting the company's valuation past the $1 Trillion level.
As well, both the Dow and S&P, indices on which TSLA is listed, also made new records.
Hertz's order was especially significant because it boosted the credibility of both the EV sector and was TSLA's most significant EV purchases ever, providing $4.2 billion in revenue to the carmaker. Moreover, for Hertz, it's just the first step in a plan to revolutionize the company's rental fleet.
Though we're not convinced Hertz's order warranted a jump of such magnitude in Tesla shares, we don't believe the rental car company's actions will provide its own stock with a similar $1.17 billion dollar gain in value. Still, though we don't see a profitable entry for Tesla investors right now, we did identify a viable trade from a technical perspective for Hertz shares, which also jumped on the news and closed 9.40% higher.
The rental car company's stock completed a falling flag within six sessions, which is considered bullish after its initial 60% surge. Note how the volume dried out during the flag formation but exploded with yesterday's breakout, a telltale sign of a bullish flag.
The psychology behind this pattern is that the flag's decline is not because of bearish interest, but rather because of profit-taking by bulls who are afraid their luck will run out. The reason the price didn't fall outright but merely ranged in a downward fashion is, presumably, because of additional bullish interest.
Once the price completes the flag, with an upside breakout, all the bulls who cashed out will likely consider this a signal that the underlying uptrend is set to resume. Those bulls will then jump back in—pushing the share price even higher.
h2 Trading Strategies/h2Conservative traders should wait for the stock to fall back toward the flag and demonstrate accumulation before attempting to buy in.
Moderate traders would wait for the same pullback for a better entry, if not for confirmation of continued demand.
Aggressive traders could short now, counting on a return move, especially after traders might consider the logic of bidding up Hertz under these circumstances and join the rest of the market on the continued rally on momentum.
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Money management is critical when attempting a contrarian position. Here's an example:
Trade Sample: Contrarian Short
- Entry: $27.60
- Stop-Loss: $28.10
- Risk $0.50
- {{0|Targert}: $26.10
- Reward: $1.50
- Risk:Reward Ratio: 1:3
Author's Note: This is just a sample, meaning it's not necessarily the one correct way to approach this trade. If you didn't read and understand this article, do not take this trade, as that would be gambling, not trading. Even if the analysis is correct, the sample may not work, and the study may not be accurate. Trading isn't about predicting the future but rather about learning how to work with statistics to increase your odds. Until you learn how to draw a plan that incorporates your budget, timing and temperament, you may use our samples for learning purposes. If your aim is to profit, you will end up with neither. Guaranteed. And there's no money back.
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