Tesla’s Recent Trading Activity Should Enlighten Us

Tesla

People are struggling to explain what might be behind Tesla stock rocketing up the charts lately. The real lesson here is that we should not even be trying to explain it.

Everyone loves to make predictions about the future price of stocks it seems. Traders aren’t among them, at least the best ones, who instead let stocks find their own way and speak to them as they move. Investors haven’t learned this lesson very well though, and Tesla should serve up some humble pie for them, whether they thought the stock was bullish or bearish, although it really won’t as they are too lost within their own thinking to notice much.

We have never really liked the fundamentals of this company, but at the same time understand that fundamentals are but one influencer, and pertain much more to the long term the shorter term. The market sees the numbers as we all do and then puts whatever spin on them as it desires, which does not just involve taking the current numbers and applying them to the stock price, it takes everything we know about the past and the present and projects all of this on the future.

This is not such an easy task to try to anticipate. We always have the current future projections at our disposal, which is the current stock price, but anticipating how these future projections will be shaped by the future is a bigger challenge than we usually think. What we do in order to manage this is to oversimplify, where we look at the change that we expect in the present a year from now, how we think a company’s bottom line will change for instance, and think that this is all there is to it.

There is much more to the story than that and this all manifests itself more in terms of mood than hard numbers, and there are no hard numbers here really, only things that we can use as guideposts that don’t always serve as all that good of a guide. This is especially tricky with a company that isn’t even making a profit yet, where we’re dealing with views that are focused not on results but on promise, and are subject to a number of other significant influencers beyond how the company’s business prospects are forecast to change organically, such as the expectation of a trade deal for example or how much short interest there is out there and how this may affect things down the road.

If you were trying to figure out where Tesla would be headed in 2019 at the start of the year, you could pick your sides, but everyone who tried to do that would have ended up being dead wrong.

Tesla has both been very bearish and very bullish in the same year, and if stocks had minds of their own, we might even want to say that it sought to teach all investors a lesson in the futility of trying to predict its movement over this time with accuracy.

This stock has been around for almost 10 years now, and has grown 2000% from its original trading price over this time. Over the last year, it has given up half of this huge gain, only to gain it all back over the next 6 months. We’re now basically back to when we started, and have now gone a little beyond that on the upside, but what a ride this has been.

If we want to know the real reason why this has happened, it is much simpler than we might imagine, and we will not find the answers in how the company is doing, because not that much has changed really and especially nothing that would have us expecting this stock to double over the past 6 months. This is the case with stocks overall and those who think that number crunching will serve as a useful crystal ball will always be disappointed in this time frame, because over this period, it especially comes down to the level of love or hate that the market has.

We Cannot Really Predict Stock Prices Beyond the Moment with Much Accuracy, Nor Should We Try To

If investors could only choose to learn one lesson about investing, this would be the one they need to learn, because if we don’t understand this, we not only don’t understand how stocks work, the illusion that we have replaced this reality with can really bite us. While this does not mean that we should not try to figure out on our own where a stock is headed, it does require that we continue to adjust our expectations as the play evolves before our eyes, as it actually does choose a path and go down it, which may end up being an entirely different one than we expected.

This is what great traders do, and back last December, they would have seen this stock hit an area of resistance and start to move down. They actually would have been riding it up during the last quarter of last year when stocks overall took such a big hit, and a 40% gain over two months while the market lost 20% eventually is what you really call having your money on the right side of the table.

This move wasn’t just random though, as last October, Tesla ended up bouncing off of a level of support from the previous March and September and this time broke out to the upside. It went up to an established resistance point and then stalled and went the other way early in December. These trades were among the easiest to spot that you will ever see, and they sure delivered the goods.

This requires a much humbler view of stocks than any fundamental analyst would ever accept, where the stock looks like it’s going to go a certain way and then we follow and watch it to see what happens. We listen to what the stock itself is trying to tell us and then listen very closely every step along the way, and when it is likely finished the move, it will tell us and then we can get off.

Picking a certain target based upon a bunch of information that is at best loosely connected to stock performance and then stubbornly clinging to our beliefs well past the point where the stock has proven us wrong is the worst thing to do as it turns out, even though these people don’t even get why this is so wrong. They can suffer lesson after lesson and still not get it because they still think that the market action isn’t important and will insist on sticking to their broken crystal balls to the end and reject any other approach without a second thought.

Traders love volatility and Tesla trades like a dream, which especially includes losing half its value in the first half of the last year and doubling in price over the next half of a year. Every stock zigs and zags on its way to where it is going but the overall trends here have been as clear as we could ever want them to be and this would be classified as very easy trades if you know what you are doing. Not many people do though.

We do know that there is a lot of short money still out there with this stock, amounts of stock that have just been borrowed to sell later. During bear moves, this accelerates downward movement, and during bull moves, it also serves to accelerate upward movement. Knowing this can help us single out the unusual potential of this stock, but we never want to be prognosticating too far in advance and any of this is going to serve to see us leave the path of reality and be committed to a wrong view and direction.

A good trader will tell you that they may have some ideas about where it is going but it doesn’t matter much, and certainly never trumps what actually ends up happening, as stocks will find their own way regardless of these beliefs. All we really need is a trend that is still happening today, in a way that suggests it will continue, and that is enough, as if this ends tomorrow that will conclude our story, the current story anyway.

Our sole task here is to determine where the profitable pivot points are, and the old trading adage of not wanting to try to eat either the head or tail of the fish always applies, as these are the parts that are so full of bones. We want the meat of the move, the body of the fish, and we need to be willing to discard both the head and tail, the bottom and top end of a move, by holding off on our entries in the other direction as the head forms, get in once it manifests, and then exit once the tail becomes defined.

When we look back upon moves like this, we aren’t going to catch the reversal perfectly as we need it to show us it is going the other way now with enough confidence, and we also need to have it show us that it is done at the other end of the move, and the part in between is the body of the trade.

This fish has shown us that it has a very big body and there are few stocks that trade with any real volume that can compare. While investors may have hung on to this stock for both the downside and upside of the last year and came out even, those who were actually playing it sure got the opportunity to earn a whole lot of dough, well beyond the dreams of investors.

We either play a stock or it plays us, and a lot of people got played with this one, even though there have been many that have played it and played it well. Anyone who has been actually trading Tesla with half a brain or better has done very well, but there are also a lot of traders whose brains haven’t grown enough, and holding on past the point where you should when trading results in real blood being spilled.

Back then, a year ago, you could take your pick if you were an investor, for instance seeing it bullish and buying it, staying on the bucking horse during a wild ride and then then make it back to the corral in one piece with empty pockets but with your injuries at least healed for now.

If you were a bearish investor, you could have seen yourself rack up a 100% return in 6 months, let it ride and then lose it all back. Perhaps you were on the fence and didn’t invest in it, which puts you in the same position overall as the bulls and the bears, right back where you started in all cases.

Running with the Pack Is So Much Easier and Better

Traders, on the other hand, ran with the bears on the way down, but were on the outlook all this time for the stampede to tire and either go sideways or reverse. Once it did reverse, they felt the ground shake as the bulls started running with the ball, in a way that was most inviting.

No matter what else we may look at, our predictions are only as good as they end up, and the time to analyze this isn’t at the end of the road and accept whatever pain resulted, it needs to be done along the way and at every step of the way. Most importantly, we don’t ever want to allow our fantasies to override reality as it manifests, to dig in our heels and close our eyes and be led blindly around by what we see as mysterious forces, and often find ourselves on a different journey than we imagined.

While some assets lend themselves very well to the close our eyes approach, such as the market move over the last 10 years, we do not want to limit ourselves to scales this big, and Tesla over the last year is a shining example of why not.

Traders strive to optimize, and while this is a never-ending quest that cannot be perfected because it uses incomplete and dynamic information, the way Tesla moves screams for us to use the sort of scale that would allow us to seek to capture these latest huge fish bodies.

Trends happen in all degrees of magnitude and duration, and the trick to trying to optimize is to seek out the ones which our trades will show a profit overall over staying in. Tesla on this 6- month frequency is an extreme example of this, with a 200% overall potential net move versus none.

There are some which have found more efficient paths that require much shorter holding times, but this is not the sort of thing that investors should ever be looking at, as trading on these timeframes is not for the uninitiated. Position trading, on the other hand, holding for a few months to a year or two on the far end, is closer to what investors usually do than traders and does not require all that many decisions, and is therefore a lot harder to screw up than with frequent trading.

The analysts are still out there on the side of the road watching all this, and still clinging to their sheets of papers full of what they consider to be analysis, even though they are not even analyzing the right thing, the object of our attention, which is the movement of the stock itself.

We still have our bulls and bears, as we always do, and in Tesla’s case, with lots lined up on both sides of this street, and they still are as pretentious as ever about their ability to not only predict the direction of a stock but even where they think it will end up.

This is useless information as it turns out, but don’t tell them, as they have a living to earn, and make a good one indeed at this. The old-time medicine shows attracted a lot of people as well, and a lot of money changed hands, but if you don’t realize that it is snake oil that you are buying, you may continue to drink it long past the point where it has shown you that it does not work, until your unrealistic hopes become revealed enough.

No one really knows where Tesla is headed right now as it makes all-time highs that no one saw coming, but what really matters is our grasping that the art of predicting stock prices much past the next bar on the chart is a futile and usually dangerous endeavor. If we instead are just willing to jump on its back and let it lead us, instead of our foolishly trying to lead it, which we can never do, there’s no predicting needed, we just need to let it speak and listen.

Eric Baker

Editor, MarketReview.com

Eric has a deep understanding of what moves prices and how we can predict them to take advantage. He also understands why so many traders fail and how they may help themselves.

Contact Eric: eric@marketreview.com

Areas of interest: News & updates from the Commodity Futures Trading Commission, Banking, Futures, Derivatives & more.

Tesla’s Recent Trading Activity Should Enlighten Us

Tesla’s Recent Trading Activity Should Enlighten Us

Tesla

People are struggling to explain what might be behind Tesla stock rocketing up the charts lately. The real lesson here is that we should not even be trying to explain it.

Everyone loves to make predictions about the future price of stocks it seems. Traders aren’t among them, at least the best ones, who instead let stocks find their own way and speak to them as they move. Investors haven’t learned this lesson very well though, and Tesla should serve up some humble pie for them, whether they thought the stock was bullish or bearish, although it really won’t as they are too lost within their own thinking to notice much.

We have never really liked the fundamentals of this company, but at the same time understand that fundamentals are but one influencer, and pertain much more to the long term the shorter term. The market sees the numbers as we all do and then puts whatever spin on them as it desires, which does not just involve taking the current numbers and applying them to the stock price, it takes everything we know about the past and the present and projects all of this on the future.

This is not such an easy task to try to anticipate. We always have the current future projections at our disposal, which is the current stock price, but anticipating how these future projections will be shaped by the future is a bigger challenge than we usually think. What we do in order to manage this is to oversimplify, where we look at the change that we expect in the present a year from now, how we think a company’s bottom line will change for instance, and think that this is all there is to it.

There is much more to the story than that and this all manifests itself more in terms of mood than hard numbers, and there are no hard numbers here really, only things that we can use as guideposts that don’t always serve as all that good of a guide. This is especially tricky with a company that isn’t even making a profit yet, where we’re dealing with views that are focused not on results but on promise, and are subject to a number of other significant influencers beyond how the company’s business prospects are forecast to change organically, such as the expectation of a trade deal for example or how much short interest there is out there and how this may affect things down the road.

If you were trying to figure out where Tesla would be headed in 2019 at the start of the year, you could pick your sides, but everyone who tried to do that would have ended up being dead wrong.

Tesla has both been very bearish and very bullish in the same year, and if stocks had minds of their own, we might even want to say that it sought to teach all investors a lesson in the futility of trying to predict its movement over this time with accuracy.

This stock has been around for almost 10 years now, and has grown 2000% from its original trading price over this time. Over the last year, it has given up half of this huge gain, only to gain it all back over the next 6 months. We’re now basically back to when we started, and have now gone a little beyond that on the upside, but what a ride this has been.

If we want to know the real reason why this has happened, it is much simpler than we might imagine, and we will not find the answers in how the company is doing, because not that much has changed really and especially nothing that would have us expecting this stock to double over the past 6 months. This is the case with stocks overall and those who think that number crunching will serve as a useful crystal ball will always be disappointed in this time frame, because over this period, it especially comes down to the level of love or hate that the market has.

We Cannot Really Predict Stock Prices Beyond the Moment with Much Accuracy, Nor Should We Try To

If investors could only choose to learn one lesson about investing, this would be the one they need to learn, because if we don’t understand this, we not only don’t understand how stocks work, the illusion that we have replaced this reality with can really bite us. While this does not mean that we should not try to figure out on our own where a stock is headed, it does require that we continue to adjust our expectations as the play evolves before our eyes, as it actually does choose a path and go down it, which may end up being an entirely different one than we expected.

This is what great traders do, and back last December, they would have seen this stock hit an area of resistance and start to move down. They actually would have been riding it up during the last quarter of last year when stocks overall took such a big hit, and a 40% gain over two months while the market lost 20% eventually is what you really call having your money on the right side of the table.

This move wasn’t just random though, as last October, Tesla ended up bouncing off of a level of support from the previous March and September and this time broke out to the upside. It went up to an established resistance point and then stalled and went the other way early in December. These trades were among the easiest to spot that you will ever see, and they sure delivered the goods.

This requires a much humbler view of stocks than any fundamental analyst would ever accept, where the stock looks like it’s going to go a certain way and then we follow and watch it to see what happens. We listen to what the stock itself is trying to tell us and then listen very closely every step along the way, and when it is likely finished the move, it will tell us and then we can get off.

Picking a certain target based upon a bunch of information that is at best loosely connected to stock performance and then stubbornly clinging to our beliefs well past the point where the stock has proven us wrong is the worst thing to do as it turns out, even though these people don’t even get why this is so wrong. They can suffer lesson after lesson and still not get it because they still think that the market action isn’t important and will insist on sticking to their broken crystal balls to the end and reject any other approach without a second thought.

Traders love volatility and Tesla trades like a dream, which especially includes losing half its value in the first half of the last year and doubling in price over the next half of a year. Every stock zigs and zags on its way to where it is going but the overall trends here have been as clear as we could ever want them to be and this would be classified as very easy trades if you know what you are doing. Not many people do though.

We do know that there is a lot of short money still out there with this stock, amounts of stock that have just been borrowed to sell later. During bear moves, this accelerates downward movement, and during bull moves, it also serves to accelerate upward movement. Knowing this can help us single out the unusual potential of this stock, but we never want to be prognosticating too far in advance and any of this is going to serve to see us leave the path of reality and be committed to a wrong view and direction.

A good trader will tell you that they may have some ideas about where it is going but it doesn’t matter much, and certainly never trumps what actually ends up happening, as stocks will find their own way regardless of these beliefs. All we really need is a trend that is still happening today, in a way that suggests it will continue, and that is enough, as if this ends tomorrow that will conclude our story, the current story anyway.

Our sole task here is to determine where the profitable pivot points are, and the old trading adage of not wanting to try to eat either the head or tail of the fish always applies, as these are the parts that are so full of bones. We want the meat of the move, the body of the fish, and we need to be willing to discard both the head and tail, the bottom and top end of a move, by holding off on our entries in the other direction as the head forms, get in once it manifests, and then exit once the tail becomes defined.

When we look back upon moves like this, we aren’t going to catch the reversal perfectly as we need it to show us it is going the other way now with enough confidence, and we also need to have it show us that it is done at the other end of the move, and the part in between is the body of the trade.

This fish has shown us that it has a very big body and there are few stocks that trade with any real volume that can compare. While investors may have hung on to this stock for both the downside and upside of the last year and came out even, those who were actually playing it sure got the opportunity to earn a whole lot of dough, well beyond the dreams of investors.

We either play a stock or it plays us, and a lot of people got played with this one, even though there have been many that have played it and played it well. Anyone who has been actually trading Tesla with half a brain or better has done very well, but there are also a lot of traders whose brains haven’t grown enough, and holding on past the point where you should when trading results in real blood being spilled.

Back then, a year ago, you could take your pick if you were an investor, for instance seeing it bullish and buying it, staying on the bucking horse during a wild ride and then then make it back to the corral in one piece with empty pockets but with your injuries at least healed for now.

If you were a bearish investor, you could have seen yourself rack up a 100% return in 6 months, let it ride and then lose it all back. Perhaps you were on the fence and didn’t invest in it, which puts you in the same position overall as the bulls and the bears, right back where you started in all cases.

Running with the Pack Is So Much Easier and Better

Traders, on the other hand, ran with the bears on the way down, but were on the outlook all this time for the stampede to tire and either go sideways or reverse. Once it did reverse, they felt the ground shake as the bulls started running with the ball, in a way that was most inviting.

No matter what else we may look at, our predictions are only as good as they end up, and the time to analyze this isn’t at the end of the road and accept whatever pain resulted, it needs to be done along the way and at every step of the way. Most importantly, we don’t ever want to allow our fantasies to override reality as it manifests, to dig in our heels and close our eyes and be led blindly around by what we see as mysterious forces, and often find ourselves on a different journey than we imagined.

While some assets lend themselves very well to the close our eyes approach, such as the market move over the last 10 years, we do not want to limit ourselves to scales this big, and Tesla over the last year is a shining example of why not.

Traders strive to optimize, and while this is a never-ending quest that cannot be perfected because it uses incomplete and dynamic information, the way Tesla moves screams for us to use the sort of scale that would allow us to seek to capture these latest huge fish bodies.

Trends happen in all degrees of magnitude and duration, and the trick to trying to optimize is to seek out the ones which our trades will show a profit overall over staying in. Tesla on this 6- month frequency is an extreme example of this, with a 200% overall potential net move versus none.

There are some which have found more efficient paths that require much shorter holding times, but this is not the sort of thing that investors should ever be looking at, as trading on these timeframes is not for the uninitiated. Position trading, on the other hand, holding for a few months to a year or two on the far end, is closer to what investors usually do than traders and does not require all that many decisions, and is therefore a lot harder to screw up than with frequent trading.

The analysts are still out there on the side of the road watching all this, and still clinging to their sheets of papers full of what they consider to be analysis, even though they are not even analyzing the right thing, the object of our attention, which is the movement of the stock itself.

We still have our bulls and bears, as we always do, and in Tesla’s case, with lots lined up on both sides of this street, and they still are as pretentious as ever about their ability to not only predict the direction of a stock but even where they think it will end up.

This is useless information as it turns out, but don’t tell them, as they have a living to earn, and make a good one indeed at this. The old-time medicine shows attracted a lot of people as well, and a lot of money changed hands, but if you don’t realize that it is snake oil that you are buying, you may continue to drink it long past the point where it has shown you that it does not work, until your unrealistic hopes become revealed enough.

No one really knows where Tesla is headed right now as it makes all-time highs that no one saw coming, but what really matters is our grasping that the art of predicting stock prices much past the next bar on the chart is a futile and usually dangerous endeavor. If we instead are just willing to jump on its back and let it lead us, instead of our foolishly trying to lead it, which we can never do, there’s no predicting needed, we just need to let it speak and listen.

Eric Baker

Editor, MarketReview.com

Eric has a deep understanding of what moves prices and how we can predict them to take advantage. He also understands why so many traders fail and how they may help themselves.

Contact Eric: eric@marketreview.com

Areas of interest: News & updates from the Commodity Futures Trading Commission, Banking, Futures, Derivatives & more.