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Is Tesla's Speed Bump Another Red Flag for the Glamour Stocks?

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JEFF COOPER'S TECHNICAL BREAKDOWN
DailyFeed
First came Google's (NASDAQ:GOOG) $100 plus rip to 1,000 off earnings, which set the table for the Netflix's (NASDAQ:NFLX) earnings Spike & Reversal courtesy of Carl.
 
Yesterday, after the bell, Tesla (NASDAQ:TSLA) blew a flat and hit the guard rail, skidding back below its 50-day moving average. Again.
 
While Tesla didn’t exactly go off the track, the checkered flag hoped for by the bulls was left languishing in the grease pit, and the stock will need some work and retuning if it is to regain its composure.
 
The charge may have been drained out of Tesla for the time being, but it is too early to say that it has lost its spark -- certainly not with Musk at the wheel.
 
What should you watch for?
 
Trade in Tesla below 153 this week will turn the important 3-Week Chart down for the first time since the bull run began in early April. So, this looks like an important level.
 
If trade below 153 plays out, the ensuing behavior will be critical to observe.
 
If the primary trend is still up, the turn down in the 3-Week Chart should define a low relatively soon in terms of both time and price. Otherwise, the likelihood is more work -- either a larger pullback or a consolidation is required.
 
360 degrees down from the 194.50 high ties to 143. On the Square of 9, both 194 and 143 align with November 17. So, this may be a time period to watch, especially if Tesla has tested 143.

TSLA's Square of 9 Chart:


Ciick to enlarge
 
Interestingly, the low prior to the early April gap was 36-37, which also is on the same vector as 143 and the 194.50 record high.
 
The 194.50 high was 4 revs of 360 degrees up (a Fibonacci fractal of 1440 degrees) in price from the 36 low just prior to the kickoff of Tesla’s explosive advance, so the Square of 9 did a good job of identifying a significant pivot high.
 
TSLA Daily Chart:


 
Importantly, the 194.50 all-time high was recorded on the last day of the third quarter. October 2 and 3 saw solid distribution days. Note the expansion in volume on the October 2 and October 3 decliners and the return rally to test the high into October 15.
 
TSLA Daily Chart from September 19 - October 15:


Click to enlarge
 
Typical of the diabolical behavior of that crafty Mr. Market, Tesla triggered shorts on a break of a Head and Shoulders Neckline on trade below 162 last week before squeezing the shorts on a Pinocchio of its 50 DMA prior to reporting yesterday after the bell.
 
As offered in this space last week on the decline, the 155 price set up as a good level for a bounce. Why? 155 is 3 squares of 90 degrees, or 270 degrees down from the 194.50 peak. In very strong stocks, intermediate declines often hold a 270-degree decline before resuming the primary uptrend. Last week, on the day that Tesla declined to 153, it reversed to close at 164, respecting the 270-degree vibration. Consequently, it will be interesting to see if a nominal undercut of last week's 153 low, satisfying a turn down in the 3-Week Chart, establishes an intermediate low. If not, Tesla may be eyeing an extension to 143 as offered above.
 
Yesterday’s report suggested the likely action in the S&P 500 (INDEXSP:.INX) was an early pullback to be followed by an Opening Range Breakout (ORB). This is trade above the first-half-hour’s range. Pulling the rubber band back first, prior to triggering an upside ORB, is what I call a Catapult ORB because they usually indicate good follow through.
 
A 10-min SPDR S&P 500 ETF Trust (NYSEARCA:SPY) chart for Monday and Tuesday shows an opening low pulled the rubber band back prior to triggering an ORB. However, the bond market rolled over causing stocks to falter somewhat after the SPY challenged its record closing high of 177.17. Yesterday, the SPY tagged 176.75 before pulling back.
 
10-min SPDR S&P 500 ETF Trust Chart for the Week:
 


That said, there are 16 IPOs this week, with Twitter (NYSE:TWTR) of course being the main attraction. So, it’s not surprising that the futes are getting goosed overnight to fluff up the market for the syndicate. The pattern of yesterday’s Catapult ORB is still dominating short term, backstopping the conga line of IPOs.
 
The question is with all that money being soaked up by these IPOs and some of the bloom coming off the American Momentum Beauty’s of late, what will the market do into the weekend and thereafter?
 
Let’s be mindful of last week’s Key Reversal in the S&P 500 and Russell 2000 (INDEXRUSSELL:RUT), remembering that two consecutive higher daily highs from here will leave these indices in a potentially bearish daily Minus-One/Plus-Two sell position. A higher high above Tuesday’s high today followed by another higher high on Thursday would satisfy the setup going into a Friday of what is an important turning-point week in our work.
 
Above, we mentioned that stocks stumbled intraday as bonds rolled over. IPOs are the heart of speculative sentiment, but the soul of equities is the bond market. So, the answer to the question of the market’s direction into what seems to be a universality of opinion about a rally that is destined to extend into year end may lie in the action of the 10-year bond.
 
Currently, the 10-year yield is attacking its overhead 50 DMA for the second time since dipping below it in September. CBOE Interest Rate 10-Year T-Note (INDEXCBOE:TNX) was rejected with authority by its 50 DMA on October 16, and the question now is will a second attempt to recapture the 50 prove successful? Will the "second mouse get the cheese" on the 10-year yield?
 
Daily CBOE Interest Rate 10-Year T-Note Chart from May with its 50 DMA:


 
10-year yields began a strong advance in May and have pulled back for 6-to-7 weeks. In major bull phases, this period often marks the end of consolidations and pullbacks.
 
Conclusion: There is substantial bullish sentiment for a continued rally into year end on the heels of what is seasonally a rough patch for the market in September and October. I can’t help but wonder if the strength in September and October may have stolen strength from what is typically a strong period from November through December. With fiscal year end over on October 31, this may be the message telegraphed by the action recently in some of the sexiest momentum names, several of which may be in the process going from cult worship to culprits.

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POSITION:  No positions in stocks mentioned.

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