Trading Tesla Stock After Elon Musk Reaches Windfall

Buy Tesla stock on weakness to its 50-day simple moving average at $627.79 and reduce holdings on strength to its monthly risky level at $821.14.

Tesla  (TSLA) - Get Report has reached a price level that triggers $700 million worth of stock options which CEO Elon Musk can exercise. 

Tesla stock gapped higher Tuesday but shares are shy of its monthly pivot at $821.14.

Tesla stock opened above this key level on April 30 but failed to hold it. The open on this day was $855.19.

Tesla’s CEO Elon Musk told investors to sell Tesla a day or two ago. They did not listen, and the stock jumped above a key level where $700 million in stock options can be cashed in. Here is the story from TheStreet.

Shares of Tesla have significant day-to-day volatility. 

The stock closed Monday at $761.19, up 82% year to date and in bull market territory 117.2% above its 52-week low of $350.51 set on March 18. 

The stock is also in the bear market territory, 21.4% below its Feb. 4 high of $968.99.

The maker of the electric vehicles and electric vehicle powertrain components recently reported better-than-expected earnings. 

The stock popped to $869.82 on April 30 after reporting strong earnings the day before. The stock opened May 1 below its monthly risky level for May at $821.14.

The Daily Chart for Tesla

Daily Chart for Tesla

Daily Chart for Tesla

Courtesy of Refinitiv XENITH

The daily chart for Tesla shows that the stock has been above a golden cross since November 7, 2019. This occurred when the 50-day simple moving average rose above the 200-day simple moving average to indicate that higher prices lie ahead.

After trading as high as $968.98 on February 4, the stock held its 200-day SMA as a buying opportunity at $370.50 on March 18.

During the rebound since then, the stock crossed its semiannual and annual pivots at $398.95 and $491.71, respectively. 

The stock opened the second quarter above its quarterly value level at $434.10.

The stock also opened May below its monthly risky level at $821.14.

The Weekly Chart for Tesla

Weekly Chart for Tesla

Weekly Chart for Tesla

Courtesy of Refinitiv XENITH

The weekly chart for Tesla is positive with the stock above its five-week modified moving average of $666.54. 

The stock is well above its 200-week simple moving average or “reversion to the mean” at $320.21. Tesla has been above its “reversion to the mean” since the week of October 25.

The 12x3x3 weekly slow stochastic reading is projected to rise to 53.18 this week up from 48.26 on May 1. 

Just before the February 4 high this reading was above 90.00 putting the stock in an inflating parabolic bubble and this bubble popped big time.

Trading Strategy: Buy Tesla on weakness to its 50-day simple moving averages at $627.79 and reduce holdings on strength to its monthly risky level at $821.14.

How to use my value levels and risky levels:

The closes on Dec. 31, 2019 were inputs to my proprietary analytics. Semiannual and annual levels remain on the charts. Each uses the last nine closes in these time horizons.

The second quarter 2020 level was established based upon the March 31 close.

The monthly level for May was established based upon the April 30 close.

New weekly levels are calculated after the end of each week.

New quarterly levels occur at the end of each quarter. Semiannual levels are updated at mid-year. Annual levels are in play all year long.

My theory is that nine years of volatility between closes are enough to assume that all possible bullish or bearish events for the stock are factored in.

To capture share price volatility investors should buy on weakness to a value level and reduce holdings on strength to a risky level. A pivot is a value level or risky level that was violated within its time horizon. Pivots act as magnets that have a high probability of being tested again before its time horizon expires.

How to use 12x3x3 Weekly Slow Stochastic Readings:

My choice of using 12x3x3 weekly slow stochastic readings was based upon back-testing many methods of reading share-price momentum with the objective of finding the combination that resulted in the fewest false signals. I did this following the stock market crash of 1987, so I have been happy with the results for more than 30 years.

The stochastic reading covers the last 12 weeks of highs, lows and closes for the stock. There is a raw calculation of the differences between the highest high and lowest low versus the closes. These levels are modified to a fast reading and a slow reading and I found that the slow reading worked the best.

The stochastic reading scales between 00.00 and 100.00 with readings above 80.00 considered overbought and readings below 20.00 considered oversold.

A reading above 90.00 is considered an “inflating parabolic bubble” formation that is typically followed by a decline of 10% to 20% over the next three to five months.

A reading below 10.00 is considered as being “too cheap to ignore” which typically is followed by gains of 10% to 20% over the next three to five months.

Disclosure: The author has no positions in any stocks mentioned and no plans to initiate any positions within the next 72 hours.