New Catalysts for Tesla
Weekly Plan 7.7.24
Folks -
Rise and Shine!
Hope everyone is enjoying a nice long weekend and is getting fully recharged for another week of trading and investing!
Let me kick off this post with a question that many folks asked me that what was my catalyst for bullish TSLA call even when the stock was trading at 230.
For those of you who are longer term readers, know about my 170 levels which was shared by me many-many weeks ago as a support level for TESLA targeting 200.
See Chart A below. You can see this market bouncing back and forth above this level, for several days, before that final break out came recently.
Remember, I have no idea when I share a level what the market will do next about it.
I can only react to it and I cannot predict what is going to happen when the market comes and retests the level- and in this case, you can see atleast 3 major interactions with that 170 level which were supported every single time. These interactions happened AFTER I published my level, not in hindsight.
Now, last week the stock finally breaks out of that 200 level which was capping it for many weeks.
First off, in such breakouts, as an educational note, you do not wanna react on the bearish side. This is important. Forget about the sentiment, forget about everything else, if the market has broken out of a long term range, even if I am a bear, I now want to wait. For a few sessions. Ideally for a week or two. What I wanna see is the market fall back under that prior resistance (if I am a bear).
If a week passes, and we are still above 200. If two weeks pass and we are still above 200, then this is not a good sign for being bearish at 200 and certainly a bad sign for being bearish above 200!
Now on the chart A above, you can see the market has made 3 successive higher-high gaps.
Gaps are very important concepts to understand in auction market theory- what a gap indicates is that there was 0 trading at that level in the time frame under question.
Meaning there were no bidders and no one to offer at that price. At the same time, you may have had old buyers or old sellers still there- stuck or in green, depending on the nature of the move.
So in this case, we can see you have old short sellers stuck at these gaps. On top of that you have not had any chance for the market makers to make a market at these gaps- in short, these levels can be extremely important support levels, if the market revisits this general area.
Do you remember what this Tesla auction looks like from one of my recent ideas?
If you guessed AVGO, then you have been paying attention.
I called for the AVGO gap near 1600 to fill at some point, when this stock was almost at 1900. Same story. Similar dynamics.
The gaps fills in AVGO and we see a monster rally last week which by all means looks robust.
Now you can do a similar thought exercise in reverse - what happens when gaps trade but they fill and we close back below them or above them?
These are key auction failures and in such instances, a gap failure may become resistance or support respectively.
Now specifically with respect to TSLA, a couple of months ago, when we were at 162, having risen from 130s to 162, which BTW was my earnings bullish call on TSLA, I mentioned that if Tesla were to firm up, it will show up on our radar. No need to guess. No need to predict. Simply watch it firm up.
This is a good example of reacting rather than having to predict. Now this showed up on my radar at 170. And then at 180 and then again at 230. If I was a bear on TSLA at 162 and then I flipped bullish at 170, that is really an 8 point difference and the stock today is 80 points higher above 170 when I turned bullish again on TSLA.
This is simply to demonstrate that it is okay to not know what any market will do next, as long as you can perceive what it is doing now, and react accordingly. With this approach the benefit is that you do not have to spend insane amount of time on analyzing fundamentals and follow the news and all. Another benefit is that you can have a smaller MAE or heat against your position. The downside of course if that you may miss out on a few points. For instance in this case about 10 points.
This is but one example. AAPL is another. GOOG, AMZN and PLTR are several others. But that is a topic for another day.
Folks, on an admin side note, some folks were curious to see if there are any July 4th promotions for this Substack. I normally do not do a lot of promotions but on special days like this one or Thanksgiving or Christmas, I do offer folks some sort of incentive to try the service. Try the links below for a couple of one time promotions. And why wouldn’t you, unless you do not want to be part of a consistently proven system?
TSLA
Let us zero in back on Tesla for a moment.
Technically, I think TSLA still remains quite robust. I think the stock still has a large short interest. The shorts have shed about $4 billion dollars in last few sessions alone.
Tesla reports earnings the week of July 26th. August 16th $250 CALL bid right now around 21 bucks has a 0.52 DELTA at the moment. I am interested in this CALL on any pullbacks.
I think if stock were to pull back and with current geeks if this call were to dip into 8-10 dollars, I will be interested in this call. For the weekly time frames, I like the 7/12 call at 250 strike but it is 7.5 dollars at the moment. If this call could be had for like $2-2.5 bucks, I am interested in this call for the weekly expiry.
Note: some of these quotes are from earlier when I started drafting the newsletter, and may have change now after Friday auction. I will update these quotes when market reopens and share them via Monday Daily Plan.
REIT
I want to now talk about a few REITs and related names, especially in the niche housing sector for a bit.
But let me explain my thought process on this sector from an overall macro perspective first.
About 45% of the American households rent or lease their homes, rather than own or have a mortgage. In the US, the lenders usually look at a 3X income to loan ratio before they can lend you to buy a home. There are other quite stringent criteria like overall credit card debt, credit score etc.
Credit card debt, unless you have been hibernating has been making new highs pretty much every month. This is compounded further by new highs in credit card interest rates.
The unemployment rate though has remained stable and at the same time the wage gains have flat lined. This is a problem when combined with higher mortgage rates as well as higher home prices due to supply constrains from the existing home sellers holding on to their mortgages which were taken out at 3% or so, only a handful of years ago.
This has led to a deeper consolidation in home ownership amongst a bunch of large corporations, for instance BlackStone BX 0.00%↑ .
Another niche player in this space is Invitation Homes. INVH homes has a portfolio of about 100000 homes, mostly in South and the Southwest, geographically. Many of these homes are sleeper homes, meaning they are in cheaper suburbs around large metro areas like the DFW and Miami. Leasing such homes is in most cases now far more affordable now than owning a mortgage. For instance, you can get a lease from 2200 to 3000 in desirable school districts, right on outskirts of major cities.
For similar home, the mortgage may be 50-100% more in many cases. This I think will push more potential home buyers to such lease arrangements. If we were to see unemployment tick higher and some of the property taxes and insurance rates to fall further, which I think they will, can benefit the likes of BX and INVH in coming years. In fact I think we should see in this week’s Non farm payrolls, the first signs of de-accelerating wage growth and softer employment numbers in this week’s NFP numbers.
If you look at Chart B above, I think INVH is consolidating here between 32-35 and I think if this range low holds, invitation homes could push higher into 50s.
BX
BX is in sort of same spot as INVH but with BX, they are more surgical and diverse in their property portfolios.
The valuations for BX are a bit stretched at the moment, but I think that is because the market has not fully priced in the context I shared earlier. They recently paid about 10 billion dollars to take one of the prominent apartment REITs private. I think if my context plays out, they are poised to benefit from it and may push higher into 150s. However at the moment, I think 117-118 remains a key Line in Sand or LIS.
What is a LIS? It is sort of a mental stop loss. If I begin to see a couple of closes below a LIS then that it a signal for me to reassess my point and may be wait for the stock to take it back again to resume my bullish or bearish bias.
GEO
GEO is an older Substack stock that I shared at 7 bucks several months ago. It has since risen to about 15 at time of this post.
I do like this price action in GEO but as long as we hold 11.7-11.8 levels on GEO. As a company, they are favored to do better if the Republican nominee wins the 2024 elections. A Democrat win in 2024 may be a headwind for this particular stock.
This is pursuant to my point a couple of weeks earlier- that as we head into late July, early August, more patterns will emerge based on likelihood of one party winning the elections over the other which I will share as I see one.
Outside of this what else is moving?
Well, the likes of NVDA, AAPL, AMZN, GOOG, AMD, TSLA- you name it, these are are well held stocks with vast majority owning them in one form or the another.
Remember in recent weeks, I have had shared these at much-much lower levels. For instance:
TSLA at 170. It is now 253.
NVDA at 55. It is now 126.
AAPL at 160s. It is now 225.
GOOG at 130s. It is now 192.
AMZN at 150s. It is now 200.
MSFT at 390. It is now 470.
META at 400.
I have been a mega cap bull but I have been bullish on levels which were far-far lower than where we are now. Before this leg up higher, long term readers will know I was bullish on levels far-far lower than this too. I was a GOOG bull at 80. META bull at 80. TSLA bull at 100! AMZN bull at 120!
There is one point where I see valuation-fatigue set in. Yes, everything is going up. Yes it may continue to go up. However, as a market practitioner, there has to be some sense of valuation for me, there has to be some methodology which can identify some ideas at decent levels. This is why in recent days I have taken a back seat and I am just bidding my time for some attractive levels to strike again. Our long term readers understand that this there will be some weeks or months in a year when there is really nothing that makes sense from a valuation perspective. Normally for me to be bullish on something longer term, there has to be some level of volatility in the market. Where is the volatility right now?
PLTR
PLTR is an excellent play that I shared only a few weeks ago after its earnings at 20 dollars when I got in bill again.
It is now 27 dollars.