The high yesterday stalled between the 100 and 200 day MA.
The price of Tesla is trading sharply lower on the back of the law suit filed against Elon Musk for fraud. The suit says that Musk issued «false and misleading» statements. That he failed to properly notify regulators of material company events.
The SEC even sided with the general pot smoking community, that the $420 price set in his damaging tweet was a reference to marijuana. He thought his girlfriend would get a kick out of it.
Needless to say the stock is down sharply and currently trades at $273, down -$34 or 11.25%. Analysts are putting out all sorts of warnings to stay away. The company is radioactive.
That is just the tip of the the fundamental thoughts/news. There is more like:
- Can Tesla get any funding now if they need it?
- Will the market take out the Musk premium?
- Will more key personnel jump ship?
- Is there a replacement for Musk even with all his warts?. etc..
Most is not very bullish.
Technically, were there any traders who sold against the stocks 100/200 day MA yesterday? Looking at the chart above, the 100 day MA (blue line in the chart above) came in at $313.27. The 200 day MA (green line) came in at $316.27. They are pretty close together.
The high price yesterday reached $314.96 — right between those two levels.
That was a strong resistance level off the corrective move higher.
Admittedly, you may have had to be more lucky than smart. The «market» was not expecting the after close headline news, but it is my belief that traders make their own luck (and it requires some smarts too). Risk was defined and somewhat limited against the MA levels.
Putting it another way, in absence of the event news from the SEC, the risk for traders today would have been those MA levels. That is quite minimal. Stay below is bearish. Move above is bullish.
There is no denying, that technically the MAs formed a key area — especially since it was the first test of the MAs since the September low at $252.25.
Traders who focus on risk, will look for those KEY areas to lean against as there tends to be a «crowd» who will take that low risk bet 10 out of 10 times. I like to say «Risk a little, to make more than a little.» We know for the most part, what the «risk a little» is. It is a move above the two MAs. The «more than a little» potential reward can be an 11.3% decline (like we saw today). It could be a 50% decline if the companies fortunes really unravel.
The point is, the reward is much more, than the risk of the move above the MA levels.
Sometimes, you do get really lucky and have a random event that works in your favor.
Can you argue that the risk for a positive event could have also been announced?
There is always the possibility but it would have been really random (these thing don’t happen every day, hence why they are random). Plus, if anything, the fundamental company specific risk is still more bearish given the overall news over the last month or so.
Technically, it was just a sweet level for technical traders who focus on risk.
Do you focus on risk defining levels? Maybe you should start if you don’t. You may find that Lady Luck is more in your favor.