Now That It's Joined The S&P 500 Is Tesla Running Into Trouble?
Jani Ziedins | Dec 22, 2020 12:50AM ET
Monday was a historic day for Tesla (NASDAQ: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 straightforward 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.
Get The News You Want
Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.