Trade On Technicals Not Fundamentals

It’s not just gold that recently broke the $2000 handle.

Take a look at Tesla.

Elon Musk, that eccentric South African, now worth over $100 billion.

The market cap of Tesla is $380 billion-plus.

Think about it.

Toyota, the largest car manufacturer in the world (and one that actually sells lots of cars) has a market cap of only $220 billion.

Tesla trades over P/E 1000.

It’s going to have to sell one helluva lot of cars to justify that price.

I can’t see Warren Buffet adding it to his portfolio any time soon.

 

Robinhood traders

But millennial traders aren’t buying Tesla because of fundamentals, stupid.

They’re buying it because of brand Musk.

He’s cool.

He smokes joints. Fires flame throwers and flicks the V’s at market regulators.

He called the diver, who rescued a team of kids from death in a cave, a pedo.

And it’s endearing him to a whole generation of traders.

In the good ole days, they’d be listening to punk  – nowadays they play the market, albeit in a very punk-like way.

Musk is the corporate equivalent of the Beasties Boys – as they flooded bathtubs and offended disabled kids across Europe.

And Robinhood traders can’t get enough of it all.

**** the fundamentals.

They’ve crippled the shorts.

Old-timers, shocked at the extreme valuations have been taken to the cleaners.

They’re down a collective $25 billion (I did say you shouldn’t short the stock market).

 

No connection with reality

I’ve never been one to believe markets reflect the real world. Ever.

It’s strange though, it’s taken so long for the mainstream to wake up to the fact.

But now the facts truly stink.

The markets have become nothing more than one monumental game of black-jack (note I didn’t say roulette).

A place where you can use your government COVID check to play.

And if you know how to play, you can do well in a market propped up by the Fed.

Don’t worry the central bank has your back.

If the market falls hard, this time it really is game over.

In the past, market wobbles have been met with stimulus and lower rates.

Central bankers had zero balls (save Paul Volker). They couldn’t ever face doing the hard thing.

And now they’ve backed themselves into a corner, they can never do the hard thing.

Save the whole thing collapses.

COVID has seen to that.

 

Musk the genius.

Trump called Musk a genius, and no doubt he is. A great marketing one for sure.

He knows how to pump his brand.

He’s got influential friends in the background. He avoided jail time. And Tesla has been the recipient of large subsidies.

Making a profit doesn’t matter. And the stock price is at all-time highs.

I agree with Trump, Musk’s a genius.

In the good ole days, the stock would’ve been a dog.

I can’t help but think if the Tesla price collapses though, it will take the whole ship down with it.

Just like Enron. The reasons are different.

But the speculative insanity’s the same.

Then there is the 5-1 stock split.

Stock splits make absolutely no fundamental difference.

Other than making the stock look cheap…. to the clueless that is. Genius move.

Fundamentally the stock’s a wrongun.

I mean, who was the last person you know who bought a Tesla?

Tesla

 

Trade on technicals not on fundamentals

With that rant out the way, I just bought the stock, all-time highs and all.

What a hypocrite!

Am I mad?

No.

I just know when you see a setup you have to take it. Even if the sensible thing to do is stay away.

The hardest part of trading is having to do the opposite of what you feel.

But it’s that what separates the amateurs from the pros.

Fundamentally the stock’s a basket case. But hard fought experience has taught me you don’t second guess your setups.

As Jesse Livermore once said:

Remember that stocks are never too high for you to begin buying or too low to begin selling (shorting).

I am sure sometime Tesla will come crashing back down to earth one day. But until that time its party on.

 

 

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John Scott
John Scott has been trading CFDs and FX since 2003. His favourite markets are the Dow 30, Gold and the GBP/USD. John believes short-term price action trading is the best approach for beginners to trade. Tradeneophytes is his humble attempt at helping new traders reduce the learning curve to trading success.
Posted in Home Page Grid, Technical Analysis.

John Scott has been trading CFDs and FX since 2003. His favourite markets are the Dow 30, Gold and the GBP/USD. John believes short-term price action trading is the best approach for beginners to trade. Tradeneophytes is his humble attempt at helping new traders reduce the learning curve to trading success.

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John Shanahan
John Shanahan
1 month ago

Hello John,
Did you take a hit with the Tesla trade and how did you manage it with the major gap? Just interested in how an experienced trader deals with these type of scenarios?
Cheers