Wednesday, February 03, 2016

Tesla Shares Slide to 18-Month Low: TSLA Stock Chart Review

Tesla (TSLA) shares are trending lower in 2016. It's only early February, but the stock is already down 26% year-to-date (Bloomberg stats). We'll review the chart and outline what this means for TSLA shareholders.

Having gapped lower and closed in the red on January 4th, the first trading day of the year, TSLA has continued to slide. Today, the stock is trading below $180 for the first time since May 2014, an 18-month low. Note: Tesla is expected to report earnings on February 10th.

Note the annotations on this weekly chart. TSLA failed to make new highs in the summer and fall of 2015 and has faded lower since. The previous lows, from $177-$182, are marked with green arrows. The stock is currently trading at $174, a level last seen exactly 2 years ago in February 2014, when TSLA was trending higher.

Tesla TSLA stock chart price Elon Musk


Having transformed the global car market with a truly sexy lineup of luxury EVs (electric vehicles), Tesla became one of the hottest momentum stocks of 2013 - 2014. The stock went on to reach a high of $291 in late 2014, after Elon Musk announced that Tesla would open source its patents in a drive to kick-start the electric car market and speed the development of an electric charging infrastructure.
 
Fueled by the excitement of new product launches for the Tesla Powerwall and the new Model X, TSLA made one last run to challenge its old highs. After failing to close above $285, the stock faded lower and began trading below its 200 day moving average in the fall of 2015.  

Here is a good Tesla video post that my friend, Olivier Tischendorf made in December 2015 highlighting key levels in the stock. He outlined some ways Tesla shareholders might manage their risk as the stock reached "a crucial level". TSLA was trading north of $225 when this video was released.

 

The topping and sideways consolidation of late 2014 - 2015 now seems to be turning into a "stage four" downtrend. While the stock may have a short-term bounce higher in the weeks ahead, or find longer-term support in the $115 area, we must be aware that its strong momentum phase and uptrend are behind us. 

So what does this mean for us, as traders and investors? Well, the risk with a high-profile former leader like TSLA is that its declining share price attracts "bargain hunters" who are hoping to buy a stock "cheap". Unfortunately, these people often buy dips in a trend that has already run its course. You can buy the dips in a strong uptrend and come out all right, but buying dips in a downtrend is a losing strategy. 

Why? Because a downtrend is a series of lower highs and lower lows. Will you have the patience and the capital reserves it takes to sit through these long declines? Yes, some share price rebounds are sharper and faster than others, but some stocks take years to base out and begin a new uptrend. Do you really want to tie your money up with a losing stock, or worse, average down into a loser, when you could preserve your capital and your wits as you wait for better opportunities to appear?

"The small investor is typically moved by ignorance and passion..." - John Train.

Yes, I'm a big fan of Tesla the company and its amazing co-founder, Elon Musk. Do I love the stock here? No

We must learn to separate the two, a company and its stock, or watch our money evaporate in some vain pursuit of "bargain hunting" fanboy-ism. Emotional involvement in companies is best avoided when buying and selling stocks. Falling "in love" with a company and its products means your judgement will be clouded when it is time to make crucial decisions to buy or sell the stock.

Related posts:

1. Paul Tudor Jones on Trading and Risk Management.

2. Marty Schwartz: Market Wizards Interview Highlights.

Tuesday, February 02, 2016

FANG Stock Divergence: Facebook and Google Outperforming

Facebook (FB) and Google (GOOG) are outperforming the market (SPY) and their fellow "FANG" stock compatriots, Amazon (AMZN) and Netflix (NFLX), after a very successful earnings period. 

Here's a quick breakdown of their Year-to-date returns in 2016:

FANG divergence: Facebook + Google now outperforming YTD.$SPY -6%$FB +11%$GOOG +2%$AMZN -18%$NFLX -19%

— David Shvartsman (@FinanceTrends) Feb. 2 at 12:25 PM
 
Now over to a 6-month performance chart. 

Facebook Google Netflix Amazon FB GOOG AMZN NFLX SPY


You can see FB and GOOG (in light blue) are neck and neck for the period, both up 21%. AMZN is still holding on to a gain of nearly 4%, while SPY is down 9% and NFLX is down 18%.

The past week was a marked turnaround for FB and GOOG. As recently as late January, all the FANG stocks were in the red YTD, largely underperforming the SPY and stronger defensive stocks. Facebook and Google are now leading the pack, with FB even outperforming some of the defensive names (utilities, cigarettes, REITs) that had shown their strength early on in 2016.

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Tuesday, January 26, 2016

These Few Stocks are Outperforming the Market in 2016

Earnings season underway plus a volatile, declining market equals few real opportunities on the long side of the stock market for active investors and position traders. Today we'll look at some of the stocks that are outperforming in this weak market, as an update to our recent defensive stocks post.

2016 began with a global stock market rout, but this weakness in the major US stock indices was preceded by a deteriorating picture for individual stocks in the broader market several months earlier. One key statistic to highlight this trend: back in late 2015, researchers at Strategas Partners found that the 10 largest stocks in the S&P 500 had accounted for more than 100% of the index's gains that year. 

 
Now, as we look at the market in 2016, we see an environment that is not only punishing for the leading averages, but for the leading big cap stocks as well. While the FANG stocks (Facebook, Amazon, Netflix, and Google) powered the market higher for most of last year, their 2016 start has not been as stellar. Year-to-date SPY is down 7%, while FB is also down 7%, AMZN is down 11%, NFLX is down 15%, and GOOG is down 6%

Meanwhile, the average stock is down in 2016. Stocks that are down year-to-date far outnumber those showing a gain YTD. Set your stock screeners to Finviz and run a quick performance scan. You'll find (today) that, of the stocks and ETFs trading at least 100,000 shares per day, 3,736 are down YTD while only 435 are positive. That's a margin of over 8:1 in favor of declining stocks. Not an easy arena in which to boost your investing returns.

So which stocks are outperforming in this tough environment? Well, the REITs and utilities highlighted in our previous defensive stocks post continue to hold up relatively well vs. the S&P 500. I'm also finding a few bright spots in consumer names like Campbell Soup (CPB) and Reynolds American (RAI), and in gold mining shares such as Barrick Gold (ABX), Harmony Gold (HMY), DRD Gold (DRD) and Richmont Mines (RIC).  

Let's take a quick look at these stocks on their daily charts. You'll see each stock's price and its percentage returns (over the past 6 months) plotted against the performance of the S&P 500 ETF (SPY), shown in yellow. 

Reynolds RAI is up 19% over 6 months vs. SPY down 8%.

Reynolds Tobacco RAI vs. SPY stock chart 2016 performance

Campbell CPB is +14% over 6 months vs. SPY -8%. It is one of the only US stocks currently near its 10-year high.

Campbell CPB vs. SPY stock chart 2016
 
Connecticut Water CTWS, also at a 10-year high, is +19% over 6 months vs. SPY -8%.

Connecticut Water CTWS vs. SPY stock chart 2016 performance

AT&T T has held up particularly well since the start of the year. It is +3% vs. SPY -8%.

AT&T T vs. SPY stock chart 2016

 Barrick Gold ABX has really taken off since January and is +38% over 6 months vs. SPY -8% 

Barrick Gold ABX vs. SPY stock chart 2016

DRD Gold DRD, another gold mining stock I recently highlighted, is +136% over 6 months vs. SPY -8%   

DRD Gold DRD vs. SPY stock gold chart 2106

Finally, Richmont Mines RIC is a gold name that has shown unusual relative strength for some time. The stock is +43% over 6 months vs. SPY -8%.

Richmont Mines RIC vs. SPY stock chart gold performance

Are there other names showing notable strength vs. the Dow and the S&P? Of course, but these are prime examples of some of the larger, more liquid stocks you may find in your research as you run your own stock scans.  

Remember, if this type of market is not conducive to your trading or investing style, you don't have to do anything! There is absolutely nothing wrong with sitting on your hands until a prime opportunity comes along. In fact, it is that very skill (patience) that keeps veteran speculators in the game when others are losing big money and going broke.  

When you see a real opportunity come along, you will be able to deploy your idle capital and seize it. That is, if you have preserved your capital, along with your sanity! 

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