Three views of TSLA Tesla Motors

One of the things that I like to do is look at stock charts for various “tickers”. This builds skill at chart reading and can lead to new ideas (both about individual stocks and chart reading methods). A day or two ago on the ‘crawler’ at the bottom of the CNBC channel, TSLA went by with a fairly large drop. Got me wondering if it might be having “issues” ( likely related to the fact that most States will not let a company directly sell cars, only allowing sales through ‘dealers’, and Tesla has no dealers…)

So here are some charts, with various points of view, for purposes of illustration, mostly.

TSLA has been a bit of a Darling Stock. Lots of true believers bought into the Story. (“There’s always a Story. -E.M.Smith”) But the Story rarely matters. At any rate, you can see the flow of money in, the rush up, then once all the True Believers have bought in, it starts to go flat. Now, will little recent gain, some folks have headed for the exit. IMHO, more to follow. Once folks start to question the Story, things usually are rocky for a while.

First up in my fairly typical daily one year chart. This one has a slightly different set of indicators on it ( I usually do an “RSI MACD DMI” set first (Relative Strength Index, Moving Average Convergence Divergence, Directional Movement Index); but sometimes I’ll look at Volume, Volatility, Momentum, and more. In this case, I found volume a bit more interesting. Then a bit more digging and some of the other indicators flesh out the story.

TSLA Tesla 1 year daily Volume, MACD, DMI

Now this chart is a bit hard to read. Still, you can get some things from it. One of them being that maybe another time scale would be easier to read. Notice how it runs up, then down, in fairly wide swings? That can make a chart kind of chaotic, so using longer averaging intervals can hide some of that and let you see the overall bias or trend a bit better. (In more sedate stocks, over averaging the data takes out all the interesting short term data and just leaves you with a dead chart saying little… Remember that averages are used to hide things. You want them to hide the noise, not the information. Even in Global Warming, the use of too much averaging is hiding the information that things move fast and not much is ‘stored’ as heat anywhere…)

The SMA stack on this one is much longer than my usual (that is a Simple Moving Average of about 25, 50, 75 days or often I’ll shorten that a day or two to 23, 46, 69 for a quicker indication). In this case the SMAs are 50, 100, and 150 days. The reason I’ve made it longer is to show longer term trends and hide the shorter term trade indications. Also, volatile tickers tend to ‘bounce off’ of a longer term SMA than to stable staid tickers. It’s good to find that line which is where reversals tend to happen for a given ticker. (Each ‘market maker’ tends to make decisions differently and use different standard tools to decide, so they will tend to shift from accumulation to distribution at fairly consistent points, not withstanding exceptional news or events.) In this case, the 100 day SMA stays regularly above the 150 day, while the 50 day line wobbles with / over the 100. Prices tend to bounce off of the 100 day on small drops, the 150 day for the major plunges. Now look to the far right (recent dates) of the chart. Both the 100 and 150 have gone flat and the 50 has plunged through both. Price has also plunged through the 150 day. The prior pattern is broken and a new regime has started.

Now look at the price peaks. Starting on the left, they get regularly higher after the drops. This market maker tended to have a little peak after the drop, then a little ‘retest’ to the SMA lines, then back to the next big peak. Now it doesn’t have that. Just shot through the SMA lines and dropping. Also notice that just prior to this drop, that peak is not as high as the prior top. “Lower Highs” is an indicator of a reversal to the downside. In traditional stock pattern reading, this is called a “head and shoulders” with the top peak being the head and the smaller about equal peaks on each side being the shoulders. Generally seen as time to sell.

With the price below the SMA stack, and that starting to reverse the order, I’d expect at some point to see a ‘retest’ to the upside. Price ought to touch the SMA stack, then fall away to the downside, confirming the reversal from a bull market into a dropping bear market for this ticker.

Now drop all the way down to the DMI indicator at the bottom. You can clearly see that the “red on top” is time to be out of the stock, while “blue on top” happens during times to be in it. Right now it’s “red on top” and with the black ADX line saying this is a strong movement (where in the prior periods it was a strong movement when it was “blue on top”. That swap of “what’s the strong one?” tends to happen when a trend reverses.

Moving up one more to MACD, it mostly is calling trade points in the usual usage. Trade out when it inverts at the top of a peak, back in on the reversal from the bottom. But notice the position of those red/blue lines vs the zero line. Well above during longer term positive trend runs, and now it has drifted to below the zero line. Generally speaking, when the MACD is below the zero line, it’s a falling trend for a while.

Finally, volume. It has interesting things to say. Early on, there is a lot of volume to the upside. I’m using the Volume+ indicator that show up days as black and down days as red. That makes it easier to see where the volume is moving things. In this case, some of the early big days are to the upside. Now look at just about the end of last month. Price is spiking up, and volume is just dying. Price runs down to the SMA line, and the attempt to move upward has those little star like price bars and nearly no volume. The market maker knows there isn’t a lot of demand higher, so he’s going to shed his inventory, then work the downside volume. Short to drive prices down and get folks to dump some stock, then cover those shorts at a profit and let it rise some again. Repeat until done. The first day of this month has a big volume spike on a down day. Volume (and thus commissions) are to the downside. Compare about June 15 / July 20 or so; where volume spikes to the upside and drys up on the down times back to the SMA lines. Volume patterns are saying it’s time to be out, and likely for a while.

All reasonable things readable in this chart, but are there other indicators that don’t need as close an inspection to see the patterns? One thing I like to do is shift the “time scope”. Pick longer or shorter time intervals with slower or faster indicators. In this case, we’ll pull back to more of an investor time scope of weekly interval tick marks and a few year span.

TSLA Tesla Motors 2 year weekly ticks for 17 Dec 2014

The SMA stack is now 10, 20, 30 weeks. Being 5 day work weeks, that’s the same 50, 100, 150 days. Each price bar now shows if that week was up, or down (black / red) and how far it moved that week. The runs upward are now very clear, as are the drops. That each run up is also getting shorter also shows up. Long at the start at about 6 months, then near this end a 2 month run, then a 1 month almost a run. It’s running out of gas. ;-)

Notice the price bars at that major peak in Sept.? They look like stars or crosses. That’s typical of a peak. You can see a similar thing at that first bottom in the prior Nov. Often at bottoms you will get a ‘kangaroo tail’ (hey, not my term… that’s the actual jargon) where a price bar has a skinny line pointing away from it. The metaphor is that it will ‘bounce’ away from the ‘tail’ like a kangaroo. You see those at the middle peak. Prices were up mid-day, but could not hold it and fell back by the close.

Looking at volume, you can see how over time it has faded. Recent volume is nothing like prior volume. Also note that toward the peak, volume was well under the gold moving average line. I will often watch (on the daily chart) for what I call “two eyes” with volume gaps below that line as an indicator of a tired top. In this case you can see an inflection of the gold MA line as the top nears (well in advance) and very dead volume toward the end when all buyers have been sold The Story and few are left to buy more.

MACD is a bit slow to call an exit for trading on this time scale, but clearly describes the ‘be in’ and ‘be out’ times. It is presently headed to below zero, and on this scale that says the Story is not working any more… If you look at the Divergence (black bars around the zero line) they are a bit slow on the ‘get out’ call, but if you use stop loss orders or just watch for those kangaroo tails and stars, or any of several other topping indicators, you can reasonably trade in on Divergence above zero and out on ‘dropping to / through’ zero (or stop loss out).

Finally, at this time scale, DMI/ADX is more of a long term investment trend indicator than anything usable for trades. It’s been generally “blue on top” the whole time, modulo that plunge in Oct / Nov 2013. But look at the recent values. The black line, ADX, headed to below 20; trend of any sort is dying. At the end of Nov 2014 DMI-, the red line, is now on top. The upward long term growth trend is gone. It’s now a down trend, though not yet old enough to show much strength on the ADX line. But still, it is clearly saying “step aside, at least for a while”.

(Remember that it is likely this ticker will return to the SMA stack from below, then fall away again, giving a ‘last call’ exit point a bit higher than now. Personally, I don’t wait for that. A ticker can fall further before starting that confirmation move, and a slightly later move tends to ‘confirm’ at about the price now… so you get the roller coaster but not the cash back…)

tsla 2 year daily with RSI, Momentum, and Money Flow

This is an unusual chart for me, but has interesting things to say. It is a 2 year chart, but using daily tickers. Sometimes the slightly longer view is worth it, despite the tick marks all being smaller and harder to see.

I accidentally left the SMA stack at 10, 20, 30; but it’s interesting to see how even that very fast day trade type of setting doesn’t have that much difference from the more usual one. The longer term steadying 50 to 60 day line is missing, but you can easily imagine one just outside this stack. The 10 day line really moves fast, but does fairly clearly call early reversals as it crosses the 20 and eventually 30 day line.

RSI tends to tell you what is likely to come ‘soon’. Here you can see peaks ‘near 80’ as tops approach and ‘near 20’ as bottoms are due ‘soon’. What you can also see in this longer term chart of a Story Stock is how RSI wobbles each side of the middle, 50, before the Story hits, wobbles on the “50 to 80” side in mid rut, then moves back to ‘around the 50 line’ as the story effectiveness fades. Finally, in the last few months, it looks to be doing a ’50 to 20′ wobble that is common during slides.

Money Flow shows the large chunk of money running into the stock after the Story gets rolling. Then it fades. Now money flow is near zero and has just dropped to negative money flow as money leaves the stock.

Similarly Momentum shows the rush of all positive numbers during the rush of the Story. Then a ‘wobble each side’ but with bigger area of the flags to the positive side than the negative during the finish of the run up and stabilizing. Now it is showing more negative flag area in the below zero parts than in the above zero. Momentum is now to the downside, and increasingly so in both time and depth.

In Conclusion

So that’s pretty much how to read charts on “hot stocks” or Story Stocks. It is more dramatic than for things like GE or Coke. But that makes the indicators more clear in many cases.

When you hear a Story, and it’s hot and in the news, remember to check the charts and look for these kinds of patterns. Ask yourself: Is this early in the story? Nearing a choppy top? Ready to roll over? Has it returned to an SMA line and is poised to bounce off to renew the run, or has it crashed through a flattened set and is ready to roll down?

Getting in early can make a lot of money. NOT getting out on time can lose a lot. Knowing when to buy in (“Buy The Dip!”) and seeing the dip can buy you a year or so of gains. Selling the peaks away from the SMA stack can let you keep it… So pick some recent stories, and try reading some of those charts on your own. Pretty soon you can look at a chart and know what it is saying in about 30 seconds…

TSLA at Bigcharts

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