We have witnessed, and some have experienced, the bursting of a virtual reality bubble. The FTX saga is the tip of the iceberg for the cryptocurrency space. Before this tragedy, it had already lost three-quarters of its value since November 2021. And Meta Platforms (NASDAQ: ) has fallen by a similar amount over the same period as it rolls out its virtual reality offering.
So that got me wondering how much of Tesla’s (NASDAQ: ) value is derived from good old fundamentals and how much is based on its charismatic leader? On December 10, 2020, I wrote that it’s time for Tesla’s overvalued stock to come crashing down. I have explained:
“TV personality and Mad Money host Jim Cramer argues that young investors believe in Elon Musk. The Tesla founder and CEO has been called the new ‘Steve Jobs’ by these investors, who seem willing to buy TSLA stock at any price.
New investors are also a major reason for Tesla’s massive rally since March. In fact, Cramer went so far as to say that maybe we should start taking advice from these new, mostly amateur investors instead of investment professionals.”
Let’s take a look at the correlation between TSLA and BTC.
Tesla vs Bitcoin Monthly
A picture is worth a thousand words.
Here is another view.
Tesla completed an 11-month H&S roll, a classic pattern of change. The implicit objective is to estimate the height of the structure and expect a retracement of the break down at $21.
Now, I’m not saying that’s the direction the action is taking. This is how technicians set goals based on a century of trading. The problem with a stock like Tesla is that its return pattern is so out of proportion to its historical price, like Bitcoin. When the cryptocurrency was trading below $43,000, I scoffed at the suggestion that it was headed for $30,000, and if it broke that level it would continue to fall until it hit multi-year lows. I pointed out that the massive model meant a target below $0. At the time, institutions were launching into the space and the voices of new-age investment and asset banking were talking about $100,000 and $1 million. I had no idea BTC was going to crash. I knew it was the “implicit target” of trading patterns.
So why is price pattern important in relation to stock price history? Because its profits have been made on a disproportionate, possibly unsustainable, scale.
On November 2, the price ended a rally, falling after an initial decline of 29.1% in two weeks. The implied target is an $84 drop from the $229 exit, which gives us $145.
On Wednesday, the stock completed a flag-like rally, falling after the previous decline of $60 in 7 sessions. His implied target is a further drop of $60 from the $191 exit point to $131.
If these last two patterns occur, they will break the descending channel, which means the price will increase its downward momentum.
Trading Strategies – Short Positions
of conservative traders we should wait for the price to fall below $177, the low of November 9, then return to the distribution demonstration and wait at least three sessions, so that the price does not rise above the flag.
of moderate traders would sell short if the price falls below $180 and ensure that it is not a bear trap for at least two days. Then they would wait for a move back for a better entry, if not for confirmation.
of aggressive marketers may be short now.
Example trade – Aggressive short
- Admission: $185
- Stop Loss: $195
- Risk: $10
- Target: $135
- Reward: $50
- Risk-reward ratio: 1:5
Warning: At the time of publication, the author held no position in the titles mentioned.