An Elon Musk Day: Downtrend Forming for Tesla; A Post-Earnings Opportunity for Solar City

Elon Musk took a small hit on his two high-flying darlings Tesla (TSLA) and Solar City (SCTY) in the wake of recent earnings. Both represent some intriguing technical trading opportunities that I review in brief here.

Tesla (TSLA)

I used twitter to talk about Tesla pre and post-earnings. On Tuesday, November 5, I noted a huge volume surge in TSLA weekly $150 puts (hat tip to a friend of mine).


I continued following the drama today (Nov 6th) with these $150 puts and tweeted frequently. First I was surprised that TSLA opened without breaking to a fresh 1-month low. Next, I was surprised that the stock managed to break the $150 level to the downside. Finally, I was surprised that the stock was able to come back from that breakdown to finish above $150. In the process those weekly $150 puts ranged from about $0.93 at the lows to $6.40 at the highs! In the end, the puts closed up 63%. The MMs (Market Makers) have a lot of work to do to snatch profits out of those puts!

While watching the puts, I almost missed two things that indicate a sustained downtrend could be forming on Tesla. On the daily chart below, you can clearly see how TSLA is generally following the lower-Bollinger Band lower. The pop ahead of earnings was a huge fake-out. I added a line at the previous 1-month low to show how TSLA opened with some hope to avoid a breakdown, only to get rejected at the top of the downtrend channel and then trade to a near 2 1/2 month low.


TSLA struggles to hold on post-earnings
TSLA struggles to hold on post-earnings

In the process of this bouncing around, the old 1-month low eventually became resistance. The intra-day 15-minute chart provides a close-up to some important technical action. The intial bout of bottom-fishing on the stock lasted only 15 minutes. After TSLA set a new low for the past month, the selling soon climaxed at $146.36. From there TSLA made two valiant attempts to break the resistance at the old 1-month low but failed. I am now watching this level like a hawk. A break to the upside may have me trading for a quick bounce. Follow-through selling will confirm the unfolding downtrend.


TSLA struggles with intraday resistance after succumbing to sellers
TSLA struggles with intraday resistance after succumbing to sellers

Finally here is a 1-year chart for most of this year as a reminder that TSLA’s current troubles are still a drop in the bucket relative to this year’s gains. Also note how TSLA traded below its 50DMA for the first time since March. Since then, not a single downtrend unfolded like the current one. Given the previous uptrend, the only “natural” support rests at the 200-day moving average (DMA)…which happens to float right above $100, a source of brief congestion back in June.


An unfolding downtrend that barely registers on the "richter scale" of TSLA's monster gains in 2013
An unfolding downtrend that barely registers on the “richter scale” of TSLA’s monster gains in 2013

Solar City (SCTY)

I wrote about the pre-earnings opportunity for SCTY in “Solar City Pre-Earnings Technical Review – November, 2013 Edition.” In that piece, I presented a case for expecting SCTY to trade up post-earnings if it moved much at all. I tweeted just ahead of the close of trading that the market would not give me my price selling puts, so I stood on the sidelines of the trade. SCTY traded down as much as 10% in after hours trading, so of course I felt a little relieved that the trade never executed. I was reminded why I was targeting a sufficiently high price on selling the puts: I needed compensation for some downside risk in case my pre-earnings trade ended up on the wrong side of the fence. At its current point, my trade would register a small loss.

While SCTY has no natural support until around $44 where the 50DMA resides, I am preparing to sell puts as a continuation of my original pre-earnings trade idea. If SCTY can actually trade down double digits in the wake of all four of its earnings reports, perhaps it can also pick up the pieces for a fourth time and eventually launch into a fresh rally. I will be reaching for some time premium to give this one time to work its way

Be careful out there!

Full disclosure: no positions

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