Buy Me a Gift! (TSLA,XLK,FAS)
There’s nothing more disheartening than having to remind someone it’s your birthday. Not just anyone, of course, but someone who’s supposed to know and has forgotten.
Why? Because it puts you in the awkward position of making someone else feel awkward for the purpose of getting something from them.
Face it: there are those who will certainly forget, those who you HOPE won’t forget, and those whom you can’t under any circumstances LET forget, because THEY can’t afford to – they’ll feel worse than you if they’re not reminded.
And there the trouble begins…
Here at Normandy – birthday or no – we feel it’s our responsibility to point out the uncomfortable truths that are often overlooked or intentionally ignored by the rest of the newsletter cadre, and to deliver them to your inbox in an upbeat manner, such that you don’t turn us off – heaven forfend! – and go looking elsewhere for more ‘cheerful’ news.
No, no, we say. The truth may hurt, but a dose of humor certainly helps the medicine go down, as archangel Julie Andrews once put it.
The uncomfortable truth that we want to present you with today (again) is that the markets are broken, having come unslung after central banks the world over gave them the equivalent of a breast augmentation that could smother a continent.
This was financial silicone employed to titillate the markets, and indeed it did.
But now, we’re left with the knowledge that the whole thing was just a fraud, and any fleshy pleasure that remains is but a bitter fruit. There was nothing lasting here; a one-night stand. And a proper getaway is all that remains.
To be sure, our exit strategy is prepared and waiting, but we don’t feel it’s quite the time to reveal it. There’s still a goodly upside ahead, as irrational and phony as it may be. And because of that, we stride ever onward, chasing the trend wherever it leads.
A look back before we mount the beast
We’re going to take a moment to examine our June 13th trade, from a letter entitled Guy Can’t Stop Shuttin’ Up. If you remember, there, we said,
Why? Because at the time, the financials had just won a round of Twister against the tech sector, gapping higher while the big tech names, which had led the market higher the prior six months, began their dive.
Specifically, we recommended ordering the following dish – buying the XLK July 7th 55 PUT for $0.77 and selling the FAS July 7th 45.50 PUT for $0.80. Total credit on the affair was $0.03.
Today, the XLK PUT trades at $0.61 and the FAS PUT fetches $0.25. And our best thinking on the matter says it’s time to close her down. Sell the XLKs and buy back the FASs and you pull $0.39 out of this jackdog before Friday’s expiration.
That’s a profit of 160% and it is what it is.
This Week’s Groove!
We’re turning to the world of automobiles solar panels rechargable lithium batteries space travel government handouts addictive drugs streaming music to launch a trade on everybody’s favorite… er…what is it exactly that they do?
No matter, it’s Tesla (NASDAQ:TSLA), friends, and everybody’s heard of them. So let’s get right down to the musk of the thing and examine the charts.
We’ll lead off with the daily trade for the last six months. Pay close attention to the bearish engulfing pattern that lit up the top exactly a week ago.
Here it is –
The picture is looking decidedly bearish at the moment.
Not including an exaggerated 112% run over the last seven months that’s now perfectly parabolic, we also have the specter of an RSI indicator that just took on water yesterday (in green) and a MACD crossover a week back that coincided with the aforementioned bearish engulfing pattern (in blue).
We’d be remiss if we didn’t mention the strong pickup in volume just as the push to the latest highs over $380 was registered.
But it’s the bearish engulfing pattern we want to focus on for the moment.
This is a formation that has a great deal of authority when it’s accompanied by a strong volume read, a phenomenon that we did NOT see last week when the top was set.
That said, the formation can still offer a reasonable expectation of a pullback when it’s augmented by other, strong bearish indications, like the RSI read noted above.
But we need more than that, Huey!
You got it.
More, solid evidence comes by way of a SECOND bearish engulfing pattern – this one on the TSLA weekly chart.
Here it is –
The weekly paste-up offers a broader look at the run-up from last fall, a move that appears to have stalled for the time being.
Runs of this nature provide successful market timers with great opportunities, precisely because they happen so quickly. Price, as you can see, is so far removed from her long term moving averages as to be ludicrous. A meaningful retrenchment is certainly in order – and very likely in the works as we speak.
Why? Because the bullish engulfing pattern has struck here, too (in blue), and on a weekly chart it possesses far more gravity than on a daily.
In addition, we have an overbought WEEKLY RSI signal (in green), one of the most powerful talismans in the chartists’ pantheon, a sign of a potential immediate reversal in trend.
We would also add that the stock’s run was backed by a surge in volume, a phenomenon that’s generally associated with distribution.
And that’s where we are.
Our instincts and expertise all point toward a short position in Tesla stock, so that’s what we’re doing.- Content protected for Normandy Executive Lounge, Wall Street Elite, Executive Lounge members only]
The short PUTs a placed at long term support.
With kind regards,
Hugh L. O’Haynew