Happy Sunday, Traders!
I hope that you have all been keeping well and, most importantly, safe! Last week was certainly eventful, with earnings now well and truly underway. The upcoming week will set the tone for the weeks to follow, in my opinion, with many mega caps set to report.
As I have mentioned in my latest posts and video, I will be traveling until the end of October, so the posts will be shorter than usual until I return. From the beginning of November, it will be business as usual, and I will be back posting video watchlists as well!
As you’ll recall from my previous several posts, until I return, I will be mixing things up a bit in the weekly posts. This week, I want to review a top idea from last week, hoping that my thought process can be carried through to the upcoming week, with many of the market-leading names set to report. Specifically as it relates to my idea for Tesla last week.
So, traders, let’s get straight into it!
Tesla Broke Out of the Coil Post-Earnings
As I mentioned in last week’s Watchlist, a position ahead of earnings did not make sense to me, as there is no edge in simply predicting.
However, given the setup pre-earnings and the expected volatility and range post-earnings for Tesla, momentum was expected to follow suit, and key levels of support and resistance could be used for trade management and targets.
Specifically, I wanted to look for a 1 – 2 day momentum swing position if Tesla broke below support and developed a steady trend. I wanted to look for an ATR move as a target, with a stop set near the high of the day.
Let’s see how it played out:
As I mentioned in the post, I was looking for confirmation of an early trend by noticing whether or not the stock would hold near the extended hour’s price levels, signaling the stock has sustained buying or selling, depending on the direction of the move post-earnings.
*Please note that the prices and other statistics on this page are hypothetical, and do not reflect the impact, if any, of certain market factors such as liquidity, slippage and commissions.
After reporting the previous afternoon, Tesla continued its move lower in the pre-market, signaling that selling pressure was sustained. Then, after pushing right off the open, the stock failed and put in a lower high around 10 a.m., near $226.
That was the entry point and trend confirmation, with a stop then being either placed at the high of the day OR above the lower high, depending on your time frame.
From there, as mentioned last week, a support level of $220 quickly followed suit, providing an opportunity to close the trade out or hold for a couple more hours to take the trade off once a full ATR had been achieved.
Alternatively, one could have trailed the stop by half an ATR or previous lower high, as the stock remained weak, and closed the position once a 2 ATR move had been achieved the following day, thereby sticking to the 2-day momentum swing time-frame.
The Key Takeaways:
With MSFT, GOOGL, META, AMZN, and more heavyweights set to report in the upcoming week, it’s always a good idea to arm yourself with key levels of support and resistance ahead of time.
Before trading a mega-cap post-earnings, I like to establish whether or not sustained buying or selling has been confirmed, if there are higher time-frame levels within sight that can be used as potential targets, identify elevated RVOL and clear trend development.
