Tesla (TSLA) - Jan 12th 2024
Navigating a meltdown: Decoding daily bias through participant positioning
Higher timeframe context
I've been posting updates on this TSLA weekly chart for a few weeks now.
We'll spend some time today on the higher timeframes because it's worth understanding how both sides (bulls and bears / buyers and sellers) are positioned, what they're looking for, and why there were valid cases for both sides.
Weekly & Daily charts
This first charts shows how we closed the previous week. I wanted to start with this first because, up to this point, bulls still had a case to go long. I personally went long with shares because there was a chance buyers would hold the $232 - $235 area and have the green trendline act as a S/R flip.
Now let's move onto this week. First, let's look at the daily chart (right) bar by bar:
On Monday buyers managed to print a nice bull trend bar. Very promising action for the bulls. The trendline acted as support. But, to their surprise, price gaps down on Tuesday and breaks prev. day lows. Despite the weakness, the close is not that bad. There's still buyers accumulating shares and hoping for a bounce. Wednesday, again, very heavy tape. Yet they still manage to get a decent close.
At this point, there's two lower wicks on the daily chart, indicating buyers are really trying to hold this area. Look at the huge range on the left highlighted in red. There's a huge amount of shares positioned at these prices. Obviously, the big boys are trying to defend their positions at all costs. Notice I've plotted some green Buy lines on the highs of all these bars. These lines were potential triggers for me to look for longs on this name. Neither of them ever hit.
On Thursday price finally gives up and opens with a heavy gap down. To no one's surprise, buyers immediately start offloading shares at a loss and we get a bearish trend bar that has finally broken down, not only the trendline, but the lower bound of the previous multi-week range.
Going back to the weekly chart (left) we can now observe the bearish scenario playing out. Bulls made a real effort on that trendline but it was not enough.
Hourly chart
Very clean downtrend on this hourly chart so far. The weakness is obvious. Just take a look at all the green bars. Not much going on. Very little dominance, few bottom wicks, and consistent lower highs for the past week or two. Plus, there’s room to go down if that $220 area doesn’t hold…
Pre-market action
TSLA is set to open with a 3% gap down. For context, SPY and most high beta names are gapping up, yet TSLA still can't catch a bid. Longs are rushing to offload their positions now that their bull case has technically failed (despite their multiple efforts to defend it).
Leading to the open, price has been hovering at this $220 level for a few hours now. The meltdown has paused here. This tells us there's buyers interested in accumulating at these prices, or that there are no sellers left, for now. Given this information I wouldn't want to be a seller into the open unless we get a retracement to a level. Would not be surprised to get a quick drop below that $220 and then spike up. That doesn't mean I'm in any way interested in going long.
The trade
This trade reinforces the idea I've been discussing on previous posts about how to approach an intraday counter-trend trade. We're short biased from our analysis coming into the day, and we've discussed how we're just interested in shorting after a retracement to a level. After all, we need something we can risk against.
Using our CPT Framework:
Cue(s)
Steady decline for the past few days. Rare relative weakness.
Bulls heavily offloading shares due to a major technical breakdown.
Notable gap down on a day where most high beta names are gapping up.
Intraday cue: Price rejecting the $244.89 level
Intraday cue: Price failing to move higher at the $244.89 level
Plan
We're waiting for an entry at a level. So first thing we need is a touch of a level. In this case, price strongly breaches through the first level ($222.13) we have to the upside and trades straight into the next one, which rejects hard. The intraday trend at this point is up. So, as previously discussed many times now, we're waiting for a second entry to go short. Anything that gives us a sell setup we can comfortably put risk on.
We get a failure to go higher right above the previous high of day and the $224.89 level which proved to be a strong rejection area previously. This is a great second entry, because it gives us a cue, an entry, and a clear invalidation level we can risk against.
Trigger
Break below the failure bar.
5m chart
In real-time, this trade was a little slow, but it was really just a matter of understanding the bigger picture we went over on the higher timeframe section. That should give you the patience and confidence required to hold the trade while you keep moving your stop on every small pivot to protect profits.
Note that we don't want to sell on that first rejection, ever. And trust me, at that particular point, that aggressive rejection causes FOMO. You want to jump in. You want to participate. But there's no trade there. Not only there's a level right below, but also, where do you even put your stop?
As I keep preaching over and over, wait for a second entry! More often than not it comes, and it’s a better trade. The failure bar gave you a great signal bar which allowed you to place your trade, risking against the high of the day with little stress.
Targets were the first $222.13 level, then the opening print, and after that just do whatever you fancy. I got stopped out at T3 (we didn't touch the open). But, there was another opportunity when the $22.13 was (almost) retested and left us that small doji bar with the top wick, allowing for such a tight stop it was worth getting involved. This one was super quick, it worked pretty much immediately, which made things easier. The trailing stops are shown in the chart.
Closing notes
If you found yourself looking for longs on this name either Thursday or Friday, you're heavily biased and need to find out why. Maybe you have a long term swing. Maybe you've been trying to catch bounces on that trendline (nothing wrong with that) and have failed to accept the trade didn't work. Maybe you think it's gone too far... Or maybe you're just a huge TSLA fan and can't stand watching this meltdown while stocks like META (Facebook, Instagram... ew!) have been skyrocketing with no breaks.
If any of these resonated with you, I'd like to suggest you remove the ticker from your charts. Literally. Start looking at charts, not names. Let your interpretation of price action gauge your bias. Not your attachment to a stock.
I am posting one trade writeup every day throughout 2024. I focus on large caps using levels and price action. The subscription is absolutely free and will always be. I will strive to provide value by offering clues and ideas for you to enhance your edge. Let’s grow together!