Weekly Plan 5.27.24

Hello traders-

In markets, regardless of the time frame, the max loss is capped at 100% of our investment or trades. The upside is more complicated and has infinite permutations and combinations. The upside can range anywhere from 0% to 0.01% to 100s and 1000s of percentage points.

Every reader of this publication, as well as the author, is a creature of the markets.

Markets, like in the US are setup as auction markets. Which means for every price point, for every single asset, there are bidders and sellers. This makes markets the most democratic of institutions, not just in the US but globally. A trader can have any background, any level of skill, any level of education and he or she is free to operate in the markets as they wish.

The upsides of these are obvious. For a skilled trader or investor, markets can offer a place to make a living or make a fortune for some. Markets are institutions that can protect you and your loved ones from follies of governments. Markets can be a hedge against currency devaluations and inflation. I strongly recommend everyone to be active in markets in one form or the other. However, at the same time, I also strongly believe that most folks are not trained or equipped to deal in markets in the short term.

Why is that? Because short term momentum and the way humans are hardwired from a psychological perspective. At our core, we are very averse to being proven wrong. All of us have this trait in some degree, but some of us have this very strong in our makeup.

I have covered this in detail before, however in short the way this trait expresses itself is in inability to take small losses. We let our losses grow, until the pain of taking loss exceeds our need to be right. Then we take the loss and often it means our account goes to 0. This is what I mean when I say so and so trader has been bagged.

Nowhere is this more evident than in intraday trading. It is not uncommon for some traders to lose all their accounts in one session- especially on high range days like on FOMC, NFP, CPI etc.

There is no way to insure against this, like in terms of technical analysis. You cannot use technical analysis to not get bagged. The only way to minimize the risk of being bagged on any given day, is to have a MAX loss limit and respect it like you respect your granny.

Let us take an example of this. Let us say Trader A makes on average 1000 dollars a day. This has been shown to be true when Trader A analyzes his or her trades going back over a minimum of 1 year of trading statements. In my personal experience, for such a trader, the maximum Day loss limit should not exceed 2000 dollars. This is psychologically important. It is an observational statement, means I have not done any type of scientific study on this, but I can tell this from empirical experience and having interacted with 1000s of traders over 10s of years. I firmly believe that a trader that respects this empirical rule will not be bagged and will come back to fight and recoup their losses another day.

With this out of the way, let us look at some key events and levels for next week.

As far as the key events go, next week’s Consumer confidence on Tuesday and the Core PCE on Friday is important. I have made a call earlier that the US is set to see inflation fall rapidly this week. I stick by this prediction, regardless of hot CPI and PPI recently. I have shared detailed analysis earlier what is keeping inflation high but this is an aftereffect and should drop off rapidly once car insurance prices begin falling off.

This means I am expecting the core PCE and the consumer confidence both to come in greatly subdued.

I further think the US dollar should remain under pressure and should soon begin making new lows below 100. Stronger US dollar has been fueling a carry trader where countries with weaker currencies, like the Yen are making their way to the US risk markets and are keeping a bid alive in US stocks, as a side effect but not as the only factor.

The market consensus sees no rate cuts this Summer

I think this is a mistaken take. I think the rate cuts are here sooner than the market expects.

A winner of this discrepancy could be bonds.

I recently made a call in TLT bottom around 87 bucks and TLT has since traded up to 91 and is consolidating here now. I stand by this call and I think TLT, as a broader bond proxy, is headed higher into 100 dollar area.

Is TESLA cheap at 170?

This is a complicated topic and is influenced by time frames. The short answer is that I think TSLA is cheap at 170, in the shorter time frames.

It is around 180 now and I think as long as we hold 170, this is headed towards 200 dollar area.

Longer term, this is quite complicated. Lemme share why I am bullish in the short term and bearish in the long term.

1. My main premise for short term bullish bias on TSLA is that Musk is likely going to gain more control over TSLA. How?

2. TSLA shareholders will soon vote if Musk should be awarded $56 billion in additional TSLA shares. If this is passed, it will not affect recent court decision to not award these shares, but it gives the company a strong base to argue that Musk’s stake should rise from current 13% to 20%. If this vote is passed, I think this will be short term bullish for this stock.

3. My main long term premise for bearish TSLA bias is that Musk is likely going to gain more control over TSLA. How?

4. This CEO is a highly unpredictable leader and I think most of his business decisions are arbitrary and without logic. The Chairman of the company DelHolm is already very close to Musk. Then you have Kimball Musk also on board of directors. This makes this a banana board with no checks and balances on what the CEO does. I am not a fan of such leadership style which I believe is based on exploitation, lies and control. I believe in underpromising and overdelivering to market and sell products that folks want to keep coming back to. Look at AMZN, AAPL, META- these companies win because they have a product, whether you like it or not, that folks keep coming back to. They create products which are indispensable to your day to day life, and solve real life problems whether in consumer devices, communications or logistics.

5. How does it manifest? Well when Musk gets absolute control, it manifests in development of product like Cyber Truck, and Semi. Both of these are flop products and I personally think Cyber truck will be discontinued shortly. Owning a vehicle is a matter of personal choice. However from a business perspective, it takes a lot of time, money and other resources to develop a product like Cyber Truck which is and will remain a niche product. As a matter of fact, you cannot even buy the Cyber truck in Europe, a large market. The truck is not legal there due to it lacking basis safety standards for the pedestrian and the incumbent. There are no such pedestrian safety rules in the US, believe it or not. So they were able to develop and sell this truck here in the US.

6. Then you could argue that Musk lost a lot of competitive edge pursuing these flops. He has a first comer advantage to the EV market, first mover advantage in Solar, First move advantage in development of long range EV networks. It can be argued with merit that a lot of these advantages have been lost to other competitors.

7. TSLA stock also has a rather large retail ownership. TSLA retail traders own 30% of the stock. I expect them to vote overwhelmingly to award more shares for Musk, even though it will dilute their ownership. A large retail ownership, and a smaller institutional ownership is not the best combo for any stock, let alone a company of this size.

8. More and more institutional traders will concur with my view and it will mean even lesser sponsorship of TSLA by institutional traders.

9. I think if I am right, we will begin to see weekly closes below 170 and that will be my confirmation that the stock has resumed a long term trend down. However, minus that, this stock could be supported here at 170 and could rally into 200-210 to fill some gaps.

Now if you understand what I said in last few minutes, you can see how you can be bullish on some times frames and be bearish on other longer time frames. The way this manifests is that momentum traders, who almost always are short term will pile on the stock, expecting to take a quick profit.

Longer term bullish or bearish moves are almost always created by very large pension funds, who buy stocks never to sell. This creates a floor under stocks like AAPL and MSFT, just due to the size of pension funds and other institutional funds. This is precisely why AAPL is a 3 trillion dollar company and TSLA is a mere 20% of that.

Whether long term TSLA share holders make money or not, there is one guy who is certain to get richer and richer and that is certainly not the retail trader owning 20 TSLA shares ;)

Emini June levels for this week

The key levels for me this week will be 5292 AND 5370. At time of this post, we last traded 5320.

Scenario 1: As long as 5280-5292 hold, I think we may push higher towards 5363-5370.

Scenario 2: My edge case will remain if we closed on Daily time frame below 5280/5292 or we closed on Daily time frame above 5370. Until then these these levels may remain support and resistance respectively.

Any updates and changes to this plan, will be shared via Daily Plan or Chat. So make sure you install the APP and turn on the notifications from me. Also turn on notifications from my Twitter. A lot of my tweets may not be boosted due to Censoring policies, and sometimes I share time sensitive content on Twitter as it is quite fast to disseminate information.

In terms of continuous auction, which is a propriety auction framework developed by me, the primary expectation last week was to dips being bought into 5270. What was the low of this week?

5272.

This is not coincidence folks. This is pure orderflow. See below.

What were some other ideas last week that worked well? From the weekly plan-

1. Bullish on TSLA at 170.

2. Bullish on GME

3. Bullish on ZIM at 16-17!

All worked to the tick. You can now also subscribe now and start getting these levels delivered every night to your inbox. Make sure you install the Substack app and check your spam email. I am offering one of largest ever DISCOUNTS today in honor of the Memorial Day. Click below and upgrade your membership to annual plans. It cannot get any better.

Let us now look at some other things on my radar this week

I am a thematic trader. I love to share unique and off the beaten-path themes with my subscribers.

One such theme is the whole ecosystem around AI. When folks think AI, they think it is all about the GPU, or it is all about FSD (Supervised) which has not yet shown a cent in profit for the automaker. It is not so simple.

I think one area which is quite neglected is the whole energy complex around AI. We are talking about ginormous compute power which has to be powered by something. All these GPUs and CHIPS need massive-massive investment in newer energy sources, and on the flip side, the energy or lack thereof also represents a threat to AI future.

I think there is going to be an explosion in energy demand by these AI efforts and what could benefit from it? My TOP 3 names which I think can win big from the upcoming energy boom to support the AI boom. These could be multi year winner, for instance PSTG 0.00%↑ which I shared last September around 30 with a target of 60. This stock has since doubled.