Some views on current price action

[Irishjugg]

I believe in Mark Cubans theory that you should restrict your investments to a few things that you understand very well. Diversification is for idiots.

My thinking is close to Cuban's, though I do have a small portion of my portfolio that's just diversified index funds that I keep partially as a hedge against me making mistakes, and partially because my work 401k is restricted in things I can trade etc. A significant portion of my portfolio is TSLA (probably around 15% after taking profits recently but was it closer to 25%). The real estate investment is significant and more than planned but I'm getting close to refinance time so that will free up capital, and the rest is in 401k and such.

Looking to position heavily towards renewables, Tesla, real estate with passive cash flow, and a small portion in the general us and international market.

 

[Jonathan Hewitt]

I do multi family investing (my first 4 unit is almost done with rehab) also with learning support from BP. I also used to use lending club but I don't like the lack of liquidity so I've pulled back on that. What was that about AustinEV helping your returns there?

Nice! Glad to find someone on here who uses BP. I love listening to their podcasts on the way to work and back. I'm excited to get started but keep finding excuses not to.

AustinEV shared the parameters he uses when picking notes and they have really been working for me so far. When I picked my notes before I kind of just picked what I thought sounded good to me and that did not work as well. Here's the post I mentioned: Lending Club

Just to be clear I don't have that much money in LC, not nearly what AustinEV used to have. It's mostly a spot I put money that would otherwise sit in my bank account because if it ends up in a brokerage account it somehow always ends up in TSLA sooner or later . I'm thinking about raising my LC amount to a higher value but want to see how the notes I bought since September do and how TSLA does. Problem with this is that you almost need to see the how the notes perform from start to finish (3-5 years) to get a good idea of your actual returns. However, after about 1 year I think you can have a good idea if they're going to perform better than CDs or not. Almost all the defaults I'm getting right now are notes I bought back in 2013-2014. My original thought process was all the bad apples would default early and who in the world would default when you've already paid off almost all of the loan? I have no idea. AustinEV probably knows a lot more about how it all works so sorry I don't have great advice about LC.

As far as the liquidity of LC one cool thing is you get a portion of your money back each month in interest and people paying notes back early. So yeah, if you want a large chunk back that is difficult but if you just need a little bit of money (like one of your tenants missed rent that month) you can pull cash out of the account that is generated solely from interest/early paybacks without having to sell any notes or touch the emergency fund in your bank account.

 

[ggr]

Keep all your eggs in one basket, but watch that basket closely.

It dates back to before Buffett was born. It was first printed by Mark Twain, but Andrew Carnegie claimed it was borrowed from him.

 

[adiggs]

...with learning support from BP. ...

BP?

 

[Jonathan Hewitt]

BP?

BiggerPockets: The Real Estate Investing Social Network
Basically TMC but for real estate.

 

[adiggs]

Thanks!

 

[jesselivenomore]

A lot of interesting things are happening with price action right now.

First lets look at short term ER reaction. Going into the report price was sitting right below resistance after forming a reversal candle the week before(not to mention rallying 100 points). So in order for us to break through this resistance a spectacular ER was required. What we got a was a mix of rosy Model 3 projections, scary short term financials(-$400M operating cashflow), CFO resigning, and confirmation of cap raise. Looking forward perhaps Model 3 development is most important, but what we got in front of us was a mix bag. Without a knockout ER, the path of least resistance was to the downside, especially given the reversal the week before. Also anticipation of the cap raise contributed greatly to the pressure on share price - Tesla does not get to decide at what price to raise capital, the market must find an equilibrium to accept the new shares first. This is why it is interesting to look at how SP reacted the past two cap raises.

The circled candle is the day after ER where a cap raise was implied, and the arrow points to the day capital was actually raised(at that day's closing price). The price action has been very consistent the last two times(August 2015, May 2016). The reaction to ER was pressured as price was seeking a level amenable to the cap raise, as price stabilized the following week, cap was raised within the price range established in the first day ER reaction. Once the cap raise was over with, price was allowed to appreciate. Actually there were some circumstances that led to price crashing back down afterwards(first time due to overall market China panic, second time due to SCTY acquisition), but I think those were coincidences. So if we follow a similar path this time, we should stabilize next week, raise cap above Thursday's close of 256, then price is allowed to head back up(at least temporarily). Keep in mind what that would look like on our current chart, because it gets really interesting.

So that's ER price action. Let's go back to the monthly analog that I posted a few weeks ago that I am working off of.

Firstly, for those that stuck with the Down then Up setup, you guys were dead on. I think I really outsmarted myself in the OP by interpreting false setups when especially one in particular was a great great true?setup:



So this analog was actually a great predictor of things to come as opposed to a false setup, and the following weeks we pulled back just like after 9/8/14. Sometimes it is better to just follow the charts than to over complicate things with our own interpretations.

So the reason I am bumping this is there is a similar, maybe even better looking analog setup right now on the monthly chart. This time, I offer no interpretations, just the charts.

View attachment 211900View attachment 211901

First chart starts in Nov 2011 and runs to March 2013. Second chart is current.

Area A is self explanatory, identical. The pullback for 7 months and breakout on the 8th month also. Area B may look different, but there is a technique in candlesticks where you can merge candles to form new ones. In the 2011 chart, if you merge the two candles in Area B, what is actually happening? An open at around 34 in the first candle, going up to as high as 40, then a close back down to slightly below 34 in the second candle. If you merge these two candles, the price action is actually identical to what is going on in Area B of the current chart, a shooting star pattern: open 245, goes to high of 270 then close back down slightly below open at 241. Let me know if this needs further elaboration.

Even if we play out exactly the same going forward, there can be pullbacks like in Feb 2013. But does anyone remember what happened after that?

So I mentioned that even in 2013 on the way to the final breakout there can be pullbacks like Feb 2013. Someone asked what were the circumstances of that pullback, and as it turns out it was an earnings report, too. First lets look at the monthly chart which my analog is based on:

Now lets zoom in to the circled pullback, this time on the daily timeframe:

This is the daily view of that pullback before the final breakout. Circled is the ER that caused the pullback. Price stabilized in the following days after ER, and rallied back higher(before some more chop). Now remember what I told you to keep in mind of, what price action would look like right now if we followed the prior two cap raises. Would that not lead to a repeat of the price action in 2013? Also remember what caused the final breakout in 2013, a surprise profit. Are there any circumstances now(like deferred revenue of 2700 cars and AP 2.0) that would lead to similar reaction?

We will see how this all plays out. Remember that an analog is not telling you the future, just how price MAY react under similar circumstances. For me personally, I am not taking action(take off protection/add leverage) until we break above the local high we just made at 287, which would confirm the analog.

 

[jesselivenomore]

Here is a side by side of then and now:

 

[Fallenone]

Here is a side by side of then and now:

View attachment 216345
View attachment 216346

Thanks for the analysis Jessie. One point I wish to discuss with you and others.

Back in 2013, the breakout ER was due to surprise profit from the mass production of their new product, Model S. There's no way we can expect next ER will have any significant contribution from the Model S. TE may be taking off but based on its current level it won't be substantial in anyway either. Using the differed revenue it is definitely possible to have a GAAP profitably ER (much like what they did with ZEV last year), but do you think this is really a good analog to the 2013 ER?

 

[tlo]

@jesselivenomore How worrisome is the shooting star on the current monthly chart?

 

[techmaven]

Thanks for the analysis Jessie. One point I wish to discuss with you and others.

Back in 2013, the breakout ER was due to surprise profit from the mass production of their new product, Model S. There's no way we can expect next ER will have any significant contribution from the Model S. TE may be taking off but based on its current level it won't be substantial in anyway either. Using the differed revenue it is definitely possible to have a GAAP profitably ER (much like what they did with ZEV last year), but do you think this is really a good analog to the 2013 ER?

We have several good things coming up, but clearly Model 3 production is the biggest, but a bit further out. We have PowerWall 2 shipping and news of that getting to customers should be in the next month or so. AP2 parity with AP1 should be in March. Early April should bring positive delivery numbers. May should bring the next ER, which should have some better operational results combined with higher capex. But strong positive cash from operations and possibly GAAP positive results is possible, but clearly combined with negative free cash flow. But the market is expecting that. And behind all of this is the drip drip of Model 3 expectations and ongoing milestones towards production.

I hope Tesla does this cap raise soon... announce in the next week, close by mid March. I want to be in before the April delivery numbers. I'll be in regardless before that point, but would rather have everything lined up before April.

It is interesting to me in hindsight to see the green candles right after the big drop but still have declining stock price. We might be in that scenario, especially if we get a weak macro.

 

[neroden]

My very vague and imprecise guess is that Tesla would be comfortable issuing equity anywhere above $250. Now this isn't really based on hard calculations. But I believe Musk when he says that they don't *have to* raise capital. Anything over $242 would be an "up round" (the 2016 $215 issuance was a "down round" and as such not the greatest for shareholders). $250 also seems to be acting as a support level and is a psychologically significant number.

Below $250 I think they might try something else -- convertibles, or bonds if they can get a good interest rate. (Long term bonds at a low interest rate would be ideal but they may not be possible yet.) Or just tough it out with lines of credit.

 

[GoTslaGo]

Below $250 I think they might try something else -- convertibles, or bonds if they can get a good interest rate. (Long term bonds at a low interest rate would be ideal but they may not be possible yet.) Or just tough it out with lines of credit.

Why? Is it because they will likely get a low bond rating, and hence a high interest rate?

 

[neroden]

Why? Is it because they will likely get a low bond rating, and hence a high interest rate?

Yep, basically they're likely to get a poor credit rating

 

[MitchJi]

TE may be taking off but based on its current level it won't be substantial in anyway either

The first full Q with lower prices for cells and without a cell shortage? You could be correct but I wouldn't count on it.

 

[Fallenone]

The first full Q with lower prices for cells and without a cell shortage? You could be correct but I wouldn't count on it.

Let's say TE revenue increased 10-fold compared to Q3 2016 and gross margin jumped from -4% to 15% this quarter. I think this would certainly be "exponential growth" and quite an aggressive estimate. But this also would mean only $35M in gross profit, less after taking out operating expenses. It's really not that much. Recognizing the AP2.0 first part of revenue for last Q sales would bring in something like $100M pure profit in comparison.

 

[jesselivenomore]

@jesselivenomore How worrisome is the shooting star on the current monthly chart?

At the time of my last post over the weekend I wasn't too worried about it yet because we were still green on the month, however that was before the GS downgrade. Despite the nice move today, we ended up still closing the month negative, which is very worrisome. In fact, I described this exact scenario as something to watch out for:

The prior 3 peaks all had clear reversal candles before topping out. As you can see, after today's close, we are in the midst of a long bodied green candle currently, which tells me this move is not quite over yet. We could still make a similar topping candle in the next bar(Feb), if we go up to 270 then close back below 250 for instance, then I would have to rethink my bullish stance, especially if there is follow through to the downside the month after(March). But until that happens, I have to remain very bullish.

As it turns out, the move wasn't over, as expected, going from $250 to $280. However, we did form the reversal candle the next month as I feared. Here's what it looks like:

That is self explanatory how worrisome it is. I'd qualify this by saying, the reversal can still be negated with price breaking above $260, and confirmed below $240.

There are some glimmers of hope on smaller timeframes, as we are approaching a confluence of supports, probably explaining today's strength:

On the daily chart we have the 50 EMA(orange), 50 SMA(pink), lower bollinger bands and 38.2% Fib retracement all converging at where price has held. In addition, $242 has been a price of significance going back two years:

It has acted as either support or resistance basically every time price has gotten there since late 2015. I don't think it is a coincidence that $242 was the price of the cap raise that year.

So we really have a fortress of supports all lining up at the same spot. IF we can hold here in the coming days and rally back up to above $260, it would go well with what I talked about over the weekend, continuing the analog from 2013, consistent with how price has behaved the past two cap raises. Not to mention it would negate the ugly looking monthly top.

But that is a big IF. Like I've talked about before, I put a lot more weight in what's going on in larger timeframes than the smaller ones. A topping candle on the monthly is a big red flag, and has me feeling cautious at best.

 

[TMSE]

At the time of my last post over the weekend I wasn't too worried about it yet because we were still green on the month, however that was before the GS downgrade. Despite the nice move today, we ended up still closing the month negative, which is very worrisome. In fact, I described this exact scenario as something to watch out for:



As it turns out, the move wasn't over, as expected, going from $250 to $280. However, we did form the reversal candle the next month as I feared. Here's what it looks like:

View attachment 216770

That is self explanatory how worrisome it is. I'd qualify this by saying, the reversal can still be negated with price breaking above $260, and confirmed below $240.

There are some glimmers of hope on smaller timeframes, as we are approaching a confluence of supports, probably explaining today's strength:

View attachment 216787

On the daily chart we have the 50 EMA(orange), 50 SMA(pink), lower bollinger bands and 38.2% Fib retracement all converging at where price has held. In addition, $242 has been a price of significance going back two years:

View attachment 216779

It has acted as either support or resistance basically every time price has gotten there since late 2015. I don't think it is a coincidence that $242 was the price of the cap raise that year.

So we really have a fortress of supports all lining up at the same spot. IF we can hold here in the coming days and rally back up to above $260, it would go well with what I talked about over the weekend, continuing the analog from 2013, consistent with how price has behaved the past two cap raises. Not to mention it would negate the ugly looking monthly top.

But that is a big IF. Like I've talked about before, I put a lot more weight in what's going on in larger timeframes than the smaller ones. A topping candle on the monthly is a big red flag, and has me feeling cautious at best.

Jesse,
Thanks for the cautionary note. I guess smart traders, like you, go an extra step further creating monthly candles to get a better idea of tradable patterns.

Now, I wonder, with the Wall Street being dog-eats-dog world, market manipulation could be in play to twist these monthly candle patterns in their favor. Is it possible to negate this possible manipulation by taking each monthly period from, say 15th of one month to 15th of next month? My assumption here is that any manipulation is short lived, few days, and gets unwound few days later. Thanks

 

[jesselivenomore]

Thanks for the analysis Jessie. One point I wish to discuss with you and others.

Back in 2013, the breakout ER was due to surprise profit from the mass production of their new product, Model S. There's no way we can expect next ER will have any significant contribution from the Model S. TE may be taking off but based on its current level it won't be substantial in anyway either. Using the differed revenue it is definitely possible to have a GAAP profitably ER (much like what they did with ZEV last year), but do you think this is really a good analog to the 2013 ER?

So whether the analog will play out or not is still very much up in the air, especially given today's monthly close. But IF it works out, this is the analogy I see:

After 3 years of sideways action, going back down every time we hit the top of the range(too much supply), finally there is enough buying support(demand) to hold price up while consolidating at the top of the range. Under these technical conditions(supply vs demand), a positive fundamental catalyst breaks the upper range resulting in a new trend higher.

So to your point, perhaps a surprise GAAP profit this quarter wouldn't be as big a catalyst as the Model S taking off in 2013, but then, I am not expecting a 5X share price move within 6 months either. The size of the catalyst would determine the size of the move.

Of course this is still predicated on two things. 1. Will we have a positive surprise this quarter? 2. Will price still be up here by then to reflect similar technical conditions in 2013?

 

[FredTMC]

So whether the analog will play out or not is still very much up in the air, especially given today's monthly close. But IF it works out, this is the analogy I see:

After 3 years of sideways action, going back down every time we hit the top of the range(too much supply), finally there is enough buying support(demand) to hold price up while consolidating at the top of the range. Under these technical conditions(supply vs demand), a positive fundamental catalyst breaks the upper range resulting in a new trend higher.

So to your point, perhaps a surprise GAAP profit this quarter wouldn't be as big a catalyst as the Model S taking off in 2013, but then, I am not expecting a 5X share price move within 6 months either. The size of the catalyst would determine the size of the move.

Of course this is still predicated on two things. 1. Will we have a positive surprise this quarter? 2. Will price still be up here by then to reflect similar technical conditions in 2013?

Thx Jesse,

I think the near term catalyst is a Cap Raise. Won't be surprised if it happens within the next few weeks.

Conventional wisdom (based on past raises) is TSLA will likely rise afterwards due to its derisking effect on tesla's cash position

Thoughts?