Trade Idea - TESLA short

There were several rather negative stories around Tesla recently and despite I´m a big fan of the company and its founder Elon Musk, currently the Technical picture also looks to the downside. The stock formed lower high (H2) on the weekly charts last summer followed by a lower low this February. From this low it recovered pretty rapidly after the release of the Model 3 however the momentum was enough to form another lower high (H3) in April from where it started to fall again. So the big picture says the downtrend was confirmed and last week a shooting star doji was completed which is a very powerful pattern especially if we check where it happened to appear - at the top of the descending trend channel on the daily chart. Let`s catch the wave!

The daily chart shows very similar picture as the weekly. The lower highs were followed by lower lows. Last week was full of signals the minor uptrend from the beginning of July is ready to make a U-turn however we waited until the weekly pattern is finished. Here is the overview:

Tuesday – Doji Shooting Star

Wednesday – Engulfing pattern with a low 220.29

Friday – retested low of the engulfing pattern and event the shares couldn`t close below the Wednesday min., it created a lower low at 219.64

Our bearish view  could be strengthened strengthened by the fact that while the shares closed lower the last three days, the US stockmarket closed higher making all time highs during the day. A potential overall correction of the overbought stocks may help to push the negative monentum further on Tesla. Given these facts our call is to short Tesla on Monday with the following parameters:

Entry:

Sell Stop Limit – stop 219.60 limit 219.45

Protective stop – exactly at the high of the last week 227.50, the market shouldn`t go so high again but if then be prepared to reentering the position. We will post an update if conditions allow repeated entry.

Target 1 -  at $190 just above the last low which will be likely tested if we are right with this call

Target 2 - at $170 which is $6 above the lower channel line.

The company will release earnings beginnignof August. If the figures would be worse than expected, the shares may retest also the lows from february around $142.

Few words about risk management:

Trading stocks means you may face huge gap risk (20-30%). Therefore you need to adjust your position size to this kind of reality: no leverage, the notional amount of the  trade shouldn`t be higher than 20% of your equity. Even the situation may look like a great opportunity, don`t be gready!

Watch your risk and be consistent!

Mr. TechMan

DISCLAIMER: This material was created for informational purposes only and represents the Land of Trading       teams view on past and current economic and capital market environment. It is not and shouldn´t been viewed   as an investment advice and the creator of this material shouldn´t been hold liable for any loss resulting from       action where despite this disclaimer someone would consider this  material  as an investment advice.