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Chart of the Day: Is Tesla Following Meta and Crypto?

By Pinchas Cohen/Investing.comStock MarketsNov 17, 2022 07:53AM ET
www.investing.com/analysis/chart-of-the-day-is-tesla-following-meta-and-crypto-200632490
Chart of the Day: Is Tesla Following Meta and Crypto?
By Pinchas Cohen/Investing.com   |  Nov 17, 2022 07:53AM ET
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We have witnessed, and some experienced, the bursting of a virtual reality bubble. The FTX saga is the tip of the iceberg for the virtual currency space. Before this drama, Bitcoin had already lost three-quarters of its value since November 2021. And Meta Platforms (NASDAQ:META) has lost a similar amount of its value over the same period as it builds its virtual reality offering.

So this led me to ask, how much of Tesla's (NASDAQ:TSLA) value is derived from good old-fashioned fundamentals, and how much is based on its charismatic leader? On Dec. 10, 2020, I wrote Time For Overvalued Tesla Shares To Come Down To Earth?." I explained:

"TV personality and host of Mad Money, Jim Cramer, argues that young investors believe in Elon Musk. Tesla's founder and CEO has been designated the new 'Steve Jobs' by these investors, who appear to be willing to buy TSLA shares at any price.

Young investors are also one of the main reasons for Tesla's massive rally since March. Indeed, Cramer has gone as far as saying that perhaps we should start taking advice from these young, largely amateur investors rather than from investment professionals."

Let's look at the correlation between TSLA and BTC

Tesla Vs. Bitcoin Monthly
Tesla Vs. Bitcoin Monthly

One picture is worth a thousand words.

Here's another view.

Tesla Weekly
Tesla Weekly

Tesla completed an 11-month-long H&S top, a classic reversal pattern. The implied target is measuring the structure's height and expecting a repeat move from breakout to $21.

Now, I'm not saying that's where the stock is going. That is how technicians have been setting targets based on a century of trading. The problem with a stock like Tesla's is that its reversal pattern is so disproportionately large relative to its historical price—like Bitcoin. When the cryptocurrency was trading under $43,000, I was ridiculed for suggesting that it's heading to $30,000, and if it breaks that level, it will keep plummeting to multiyear lows. I pointed out that the massive pattern implied a target below $0. At the time, institutions were getting into the space, and new-age asset and investment banking voices were talking about $100,000 and $1 million. I didn't know BTC would crash. I knew that that was the trading patterns' "implied target."

So, why is the price pattern large relative to the stock's price history? Because its gains were made at a disproportionately, possibly unsustainable, pace.

Tesla Daily
Tesla Daily

On Nov. 2, the price completed a pennant, bearish after the initial 29.1% plunge in two weeks. The implied target is an $84 decline from the $229 breakout, giving us $145.

On Wednesday, the stock completed a rising flag, like the pennant, bearish after the preceding $60 selloff in 7 sessions. Its implied target is a $60 repeat drop from the $191 breakout point to $131.

If these last two patterns follow through, they will break the falling channel, meaning the price will increase its rate of decline.

Trading Strategies - Short Entry Setups

Conservative traders should wait for the price to fall below the $177, Nov. 9 low, then throw back to demonstrate distribution and wait for at least three sessions, so the price doesn't climb back above the flag.

Moderate traders would short with a fall below $180 and at least a two day-filter to ensure it's not a bear trap. Then, they'd wait for a return move for a better entry, if not for confirmation.

Aggressive traders could short now.

Trade Sample - Aggressive Short

  • Entry: $185
  • Stop-Loss: $195
  • Risk: $10
  • Target: $135
  • Reward: $50
  • Risk-Reward Ratio: 1:5

Disclaimer: At the time of publication, the author had no positions in the securities mentioned.

Chart of the Day: Is Tesla Following Meta and Crypto?
 

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Chart of the Day: Is Tesla Following Meta and Crypto?

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Comments (11)
Yousef Options
Yousef Options Nov 19, 2022 4:05AM ET
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A company growing at > +35% year on year, with grow not expected to slow down anytime soon. Revenue from $75 billion and 2023 expected to be $110bln. High P/E is justified by the high growth. At this current valuation it's a bargain for any long-term investor.
True Stamp
True Stamp Nov 17, 2022 3:45PM ET
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The https://investing.com censoring algorithm is way too restrictive. Perfectly fine comments, original thoughts, are held back for no plausible reason
True Stamp
True Stamp Nov 17, 2022 2:34PM ET
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Mr Doodl
Mr Doodl Nov 17, 2022 12:38PM ET
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Thank you for this analysis. The same analysis on a log chart points to a target of 160$ first, if you consider the flags. The target of the H&S would be a reasonable 101 $.
Buck Wood
Buck Wood Nov 17, 2022 11:14AM ET
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In a word, no. What a mindless premise founded on absolutely nothing.
prasanna kumar
prasanna kumar Nov 17, 2022 10:31AM ET
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crypto is all about to scam peoples will suffer a lot if they trades in crypto because this is decentralized we can not ask our money to any government so i requesting you all to do not trade in this crypto market.
Kerry Drake
Kerry Drake Nov 17, 2022 10:17AM ET
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As inflation goes so will Tesla for the next year, the economy will slow and Elon's 10 billion dollar plants around the world will sit idle.
Antonio Trevino
Antonio Trevino Nov 17, 2022 9:59AM ET
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It is based on Elon, and I won’t sell. I will save this article for future reference…
Mr Doodl
Mr Doodl Nov 17, 2022 9:59AM ET
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LOL
Peter ONeill
Peter ONeill Nov 17, 2022 9:52AM ET
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Tesla is a good long term investment but WAY overvalued. It has managed to raise prices to maintain margins due to its market share. But that share is being eaten into by numerous other players including trad auto makers who are investing billions in their pivot to ev (plus add in new potential players including Apple / Alibaba / Google etc). Plus if a recession does happen / Trade tensions with China escalate future. A lot of the share price was due to brand Musk  - but now MUSK is losing interest with Tesla and concentrating on Twitter, AI, Politics and Space. It is still up 778% in 5 years - but I wouldn't go near it until it falls to Oct 2020 supports which were about $125 -  $135 (again my guess is will hit here about Q2 2023 reporting season if not sooner)
Yousef Options
Yousef Options Nov 17, 2022 9:52AM ET
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You have no idea what you're talking about. A company growing at > +35% year on year, with grow not expected to slow down anytime soon. Revenue from $75 billion and 2023 expected to be $110bln. High P/E is justified by the high growth.
Peter ONeill
Peter ONeill Nov 17, 2022 9:52AM ET
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Yousef Options  A company valued at more then every other car manufacture combined. Who had a market lead which has been eaten into by Ford etc investing billion to catch up. A company whose founder is now bored of them. A company where current valuations are ALL based on hitting 50% growth every year between now and 2030. Again its a good long term play but I wouldnt go near Tesla until around €130
RICHARD ACHIE
RICHARD ACHIE Nov 17, 2022 9:49AM ET
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There was a reason why CEO Mask was selling his stocks like crazy before now. He knows something, I follow what insiders are doing a lot.
 
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