In today’s video we talk about everyone’s favorite momentum stock – Tesla and highlight a catalyst that potentially could lead to the next large pullback in the stock and a good entry point for those looking to capture a larger longer term move. If you are interested in catching Tesla on the next big pullback you’ll want to watch this video.
View Video Transcriptin today’s video we are going to talk
about everyone’s favorite momentum stock
Tesla and I’m going to highlight a
catalyst that potentially could lead to
the next large pullback in the stock and
a good entry point for those looking to
capture a larger longer to move if
you’re interested in catching tassel on
the next big pullback stick around
[Music]
hi I’m Steven Spencer I’m a partner at
SMB capital we’re a proprietary trading
firm in New York City where we trade
stocks futures in options for the most
part there are two things broadly
speaking and that will create a
sustainable move in a momentum stock the
first thing is a real catalyst a real
catalyst is a piece of news that
momentum investors and traders believe
is a real reflection of the underlying
performance of a company one example is
either margin expansion or contraction
another example is acceleration or
deceleration of sales growth these items
can create a sustainable move in either
direction
unlike other news items that don’t truly
reflect the performance of the business
in our temporary in nature these sorts
of catalysts can lead to a sustained
trend technical examples I don’t really
need to get into you today we’ve covered
this sort of thing in many of the other
videos we’ve produced and I’m sure
others on YouTube have discussed these
setups as well what I’m trying to do
with this video is give you some insight
into how larger market players people
who are managing a hundred million
dollars plus are moved to put on risk
I’m going to use Tesla as an example to
illustrate this concept mainly because
I’ve been long tassel it for about a
year now and I prepare to add to my
position in each of the potential real
catalysts that we’re going to talk about
today as I have lied a few of these
examples seen in the past year you need
to understand that when you apply the
broader principles to momentum stock
that the specific examples will be
unique to the company we are looking at
investors have their favorite metrics
that they will focus on for a particular
company so what we look at in Pesa
wouldn’t necessarily be the same thing
as Netflix for example the two most
important metrics investors have looked
at for Tesla our quarterly deliveries
and gross vehicle Morden’s quarterly
delivery numbers give investors a
snapshot of the growth of Tesla gross
vehicle margins answer the question as
to whether Tesla can be a profitable
company longer-term one other metric
investors have paid closer attention to
you since 2018 has been free cash flow
has Tesla
introduced their mass-market model three
investors were interested to see if the
model three growth would allow Tesla to
self-fund
future investment in front of every
quarterly announcement for those stats
what I do is I game plan might reads
verse the expectations for those numbers
so I’ll come up with a bearish I’ll come
up with bearish scenarios I’ll come up
with bullish in areas and neutral
scenarios I’ll use those estimates to
prepare me to buy or sell as soon as
those numbers are released it also
prepares me for marking mistakes what is
a market mistake you may wonder let’s
say for example Tesla releases bullish
delivery number they beat delivery
expectations by ten percent but Tesla
drops in price immediately following the
release of that and piece of news this
is great with a positive catalyst like a
strong delivery bead I want to get long
Tesla if the first reaction is a drop in
price when I’m able or I’m gifted by the
market a better entry price then I
should be I’m going to get aggressively
long because my risk reward is greatly
enhanced the same thing applies in
Reverse although getting short as a
momentum stock moves higher on what you
perceive as disappointing numbers tends
to be more difficult let’s look at a few
charts and some recent examples of Tesla
delivery numbers and so we can gain some
insight because at the end of the video
what I’m going to do is give you a
preview of potentially what the q one
delivery numbers are going to be and
what potentially could be an opportunity
for a large pullback in Tesla we’ll be
able to put on longer-term positions the
first chart that we’re going to look at
is q2 2019 reaction to the delivery
numbers and I’ve also included the stats
for you to take a look at so the stats
were they came in at 95 point 2000 in
deliveries the estimates were 484 so
they beat that pretty handily by about
10 percent and they also guided for q3
to 90 to 100 basically saying
conservative guidance but at least in
line with
what we had just seen and what we need
to understand at this point when we’re
looking when we’re looking at the chart
is the prior quarter q1 was when they
missed on the numbers and it caused the
stock basically to start a down move it
was in the high 200s at that point and
eventually worked its way all the way
down to below $200 a share and so and
actually what we’re looking at here is
on the left side of the chart you can
see that down move from 260 all the way
down to 180 that’s when I started
building a longer-term long position and
it bounced back up and coming into q2
and it already bounced from 180 all the
way back up to you to 220 and so I got
in the chart here you can see we
highlighted we circled when they
actually announce the delivery numbers
you can see that day it gapped higher
above 240 I believe and started to sell
off but then in the coming weeks you can
see that it moved to above 260 a share
and so I want to talk about two things
that I mean the main purpose of this
video I had promised on Twitter actually
that I would give you an example well in
advance of potentially where we can pick
up Tesla on a large or pullback and that
that catalyst is gonna happen in the
cats out of the bag now we’re gonna look
at q2 q3 and q4 and when we do that I
think that’s gonna prepare you and set
you up to how to handle the q1 delivery
numbers that are going to come out
probably around April 2nd or 3rd or
something like that and remember when
we’re looking as we’re walking forward
in 2019 remember what the psychology was
coming into the queue to delivery
numbers the river the psychology was
really bearish the stock had sold off
from 300 to blow $200 a share because of
the poor q1 but also some other things
you know musk just doing some things on
Twitter people getting confused as to
the behavior of the company and their
CEO so there was a very negative bearish
tone and sent them in the psychology and
as I think as we walk forward through
2019 you’ll see it was very slow the
psychology to shift didn’t really get to
very positive until the final month of
the year and that’s going to impact how
we treat when delivery numbers come out
as well so it has a decent bounce it’s
above you know coming
you can see I kind of highlighted that
area where they were accumulating it
between 220 and 225 before the number
gets reported they do the delivery
number they beat it pretty handily and
it gaps up
now if the psychology was good at this
point the thing would have gapped up and
probably would have just gone straight
up to 260 but instead because the
psychology is still pretty not great it
gaps up and it’s actually sold but the
good thing about it was at that point we
had been using 225 to 220 as an area we
wanted to buy into into a pullback so
that’s bigger picture if we zoom in and
I can show you the actual reaction when
we’re trading this in the after-hours
and the number comes out when they do a
delivery number and they beat we’re
looking to get long into a pop in the
stock but it understands we don’t really
want to pay above kind of an area that
we’ve highlighted for where the stocks
been accumulated recently and so you can
see as we zoomed in as the report of
those delivery numbers for q2 it
immediately pops the 228 and the second
pop takes it to above the recent high
which was 233 in this situation I don’t
want to be if it gaps immediately to
above 233 I’m really not going to chase
the stock but in this case you can see
at 4:15 when the number gets reported it
pops to 228 it’s a number I’m
comfortable being long and if it holds
there and then breaks to the upside it
gets above the reason I have 233 that’s
gonna be a momentum by and we’re gonna
look the basely in this case we’re
looking to play it up to 240 you can see
it got above 240 I’m in a little bit
later in the after hours I got to 245
before it fell pulled back into 240 and
so the next day our thought process was
if it pulls back into 232 233 we’ll get
along there and see if it starts up an
uptrend in it and again the first chart
you looked at you can see that it
actually pulled back that day they sold
it off to the low to 30s and over the
next couple of days it actually came in
a little bit more but eventually the
scrolling delivery numbers took over
over the next two weeks and it traded up
to 260 so in terms of the psychology not
being that positive what you can see is
after they released the delivery numbers
for q2 you can see a bunch of analysts
still negative on the stock there’s a
couple that are positive Canaccord
Genuity reiterated their 394 car
no more neutral I’m not sure why they
were neutral with a 300 target when I
was still at 220 with 25% of upside JMP
mark it outperformed 347 but look at um
Wedbush 230 target Tier one they say
that’s Morgan Stanley Morgan Stanley
does Prabhas not like trade the news use
their name so they say Tier one
reiterates underperform no one has been
more wrong about Morgan Stanley other
than JP Morgan on the stack so they
reiterated to 25 so you vote I meant no
Credit Suisse actually maybe they’ve
been more wrong than JP Morgan they
reiterated 189 so you have four big
firms putting on price targets of 192
230 when they just really crushed their
delivery numbers and had positive cash
flow I think of about 600 million so
psychology is still negative then we get
to q3 a couple of things we got to set
this up for you so the stock is still
trading basically between 220 and 250
coming into the q3 delivery numbers and
a week before the q3 number delivery
numbers come out Elon Musk there’s a
leaked email where he says we have a
shot at delivering a hundred thousand
would be a new records for delivery so
if they run the stock up in front of the
earnings – so you see I highlighted
there there’s the leaked email we might
hit a hundred thousand they pop it to
two hundred and fifty dollars a share
and for a few days it’s being
accumulated above 240 which was kind of
a level where we highlighted for q2
where it had moved out so they’re
accumulating it and then the delivery
announcement comes out and it’s good
it’s solid their guidance had been 90 to
100 they comes out there had 97 their
production was 96 so they actually
delivered more more cars than they
produced which is strong you know they
were above the midpoint but because of
that musk leaked email which were they
said they had a shot at 100 I think
people were thinking they were gonna do
a hundred 102 something like that but
the great thing about that was it gave
us an opportunity to again buy it at 225
which has been our kind of our go-to
price for the last couple of months so
you can see when the market opens the
next day it drops down to 225 and we got
along there and you can see it shakes
off the disappointment of musk saying
maybe they’d hit a hundred and people
are saying wow that’s too good quarters
in a row positive cash flow over the
cash flow wasn’t as positive as
the prior of quarter but they’re making
money and went right back up to the 245
resistance but it choose you again QQ –
coming in we have the q1 disappointment
when they actually hit good numbers
really you know positive reaction they
ran it up quite a bit the next quarter
it was get it moved higher already to
242 245 disappointing delivery number
moves lower but again it’s still trading
at pretty low prices and so the next
morning there was an opportunity to pick
it up at 225 now this is the big one so
we’re gonna move forward so coming into
q4 the expectation was perhaps they
could finally hit a hundred thousand and
if they got over a hundred thousand this
would be a positive catalyst they report
production of around one hundred and
five thousand for the quarter versus
ninety six the prior quarter so this is
two quarters in a row by the way they’ve
in the last two quarters they have gone
from production levels of 87 to 96 to
105 so each quarter they’re moving up
about seven eight thousand in terms of
productions that are increasing
production and they delivered a hundred
and twelve thousand they basically every
car they produced Plus every car in
inventory they produce they delivered
and it was just a complete blowout you
probably saw me on Twitter after this
number I was actually surprised that it
wasn’t pretty much above 600 right away
we’ll take a look at the charts in a
second they say they’ve delivered the
hundred and twelve thousand and you can
see immediately the stock spikes up to
440 the market opens and it goes to 450
if we go to the next chart which you can
see here is coming into that
announcement we’re at the stock been
trading in the priorities and you can
see that it had topped out just above
430 and then a few days before the
delivery funny thing happened was neo I
think in China keep some bad numbers in
the stock stock kind of sold off a
little bit so in this case with the
record delivery numbers what you wanted
to do was as soon as it popped about 430
get long there and kind of see see how
high it was going
going to go we had very bullish tone we
had they delivered everything they
produce plus everything in inventory and
then really what people were waiting for
again these numbers are delivered on
these are these are released on January
third is in the third week in January
they typically are the third week three
weeks after the delivery number they do
their earnings and coming into that
earnings our thought process was
basically there were a 5.3 billion in
cash coming into q4 that if they got the
six billion pretty much it would be
bonanzas and what we just showed you was
it had run up from 400 to 450 on
delivery numbers but meanwhile in the
three weeks from when they reported the
delivery numbers the stock went up
another like 130 dollars from 450 to 5
and so it was acting like it was
anticipating really they thought the
financial performance was gonna be
really good
here’s the financial performance people
were expecting in dollar 60 they’d get
to 15 as I said here’s actually the cash
flow numbers you can see that the prior
quarter of the free cash flow which is
cash flow – cap capital expenditures was
370 well in q4 they just I mean they
blew it out of the park they did a
billion dollars in free cash flow and
they had over 6.2 billion in the bank of
cash and securities and our or kind of
eye on the news was if they just had 2
over 6 billion in cash because cash has
been a big deal you can see that on the
left side in q1 they drew down from
three point three point seven billion in
cash the next quarter they had a
negative 900 and they were down to two
point two before they get a capital
raise in the next quarter you can see
the capital raise plus they did 600
million in free cash flow and in q3 as
they were kind of ramping up building
the shanghai facility but the free cash
flow numbers came down but once they got
above 600 600 where just by and you can
basically see if you look at this chart
right here what you can see is coming
into the number it was at 580 so it had
run up but the product the last chart I
showed you was delivery number
nice pop got above you know 450 and over
the next three weeks before they
released the earnings number I mean it
already run up a hundred and thirty
dollars so then we’re gonna really have
to crush these earnings numbers in the
free cash flow numbers for people who
want to buy it and they did also a funny
part of about it was the earnings squawk
I initially said they look they they
missed expectations which was confusing
because the number sounded really good
to me
but then you can see it was a bit of a
delayed reaction and took about three or
four minutes for it to pop above 600 and
then it held at 620 and then the second
leg took it to 650 and since then we
know what’s happened to stock created up
to 960 came back down to 700 and buyers
are pretty much back in control as I’m
making this video I think he closed
today at nine hundred dollars a share
here we are the stock basically you know
it doubled from 350 to 700 and then from
700 it actually went vertical to 960
came back down did a test of 700 again a
few days ago they ran it up to 940 made
a little bit of a lower high and we got
a nice pullback yesterday to eat 60 and
we ran it back up to 900 again so
there’s basically the two real catalyst
for this stock or the delivery numbers
they usually gets reported two to four
business days after the close of the
quarter and then three weeks later they
give their earnings numbers and when
they do the earnings numbers that’s when
they look at the gross margins of the
vehicles and then also the free cash
flow it used to just be people and the
reason why people look at the Marquee
gross margins and the free cash flow is
it’s representative of the longer-term
health of the business and the momentum
hedge funds in the moat momentum
investors want to know you know what is
the run rate so if they did a billion
last quarter oh the run the annual run
rate if you both live that times four is
four billion or free cash flow for a
growth company sometimes that could be
to treat at forty to 50 times their
annualized free cash flow do the math
there right now it’s actually trading at
forty times right around the market
capturing one hundred and sixty billion
at 50 that’s 200 billion that’s the
stock at over eleven hundred dollars a
share so and you know one of the curious
things about this stock is be the most
of the analysts that cover a
are these car analysts and I’ve never
seen you know a technology momentum
stock you know people who cover like
Netflix or Amazon and some of those
analysts are not good either but when
you’re when they’re covering this Tesla
and most of them their automotive
analysts and even the ones were pretty
good on it that had like $780 targets
they’re just not they don’t really quite
understand the business and so I at the
end of the video I’m going to show you
three places where you can watch their
videos on YouTube that are very good
they understand how the company the
fundamentals if you want to prepare for
the first week of April and they produce
their next deliveries and then there are
there are q1 earnings to understand the
longer-term fundamentals of this company
and kind of how it’s moved from 300 to
900 I mean in the future out can move
higher I’ll give you three YouTube
channels so before we get into kind of
talking about the deliveries for q1 and
how to buy it into the next pullback
reminder we are running the 2-hour free
workshop we’re actually discussed for 30
minutes my entire process how I select
stocks each day and we also do three of
the low-risk high-reward trading setups
that the top traders on our desk used to
make money on a day-in day-out basis
here is a chart of the delivery numbers
going back the last few years in gas law
what you can see is the one that I’d
circled and highlighted for you was the
q1 we quarter that they had in 2019
which was basically because they had an
expiration of their $7,500 vehicle tax
credit so basically maybe 20,000 sales
were pulled forward to the prior quarter
and it made q1 look unusually weak
because of that pull forward and then in
q2 when the growth resumed and the stock
probably should have at that point been
moving back up to three four hundred
dollars a share because the psychology
was so negative after that q1 and all
the things that I talked about earlier
in the video it actually took let’s see
November it took the baby so he took two
months before it started to trend higher
and then finally the thing that was
really got the you know the psychology
is so positive in Tesla right now that
that final one all the way to the right
112 delivery number that was the final
piece that really got the trend to begin
two to six to five eighty and then they
release their their numbers and that’s
what got it to go up to $90 a share so
the great thing about this is we finally
actually had a pretty good set up where
this thing could actually get hit pretty
good because q1 is
seasonally really a weakest quarter in
the car industry people buy less cars in
q1 we also know that they sold
everything out of inventory in q4
they’ve already said that we’re going to
produce more cars than we sell and right
now estimates coming in to the last that
I checked was they were gonna deliver
105 thousand cars for q1 this seems very
unrealistic to me yeah the only way that
they’re gonna possibly do that if they
is the deliver every car they produced
at the end of 2019 in China and they
really ramped production in China q1 but
guess what what’s going on in China
right now half of China is shut down
because of the coronavirus so you have
half a China shut down I think the plant
in Shanghai in Tesla plant Shanghai was
shut down for two weeks and so you have
those things going on with the
seasonally we quarter
so basically I’ve already developed my
own mental framework and as we get
closer to the first week of April I will
share with you via Twitter what my
thoughts are because right now we’re at
$9 a share hopefully what will happen is
before over the next month this thing
will pull back to 800 750 to 800 so
coming into that coming into that
delivery number if we get a weak
delivery number we’ll even get a sharper
pull back into the six hundreds now all
bets are off if this thing moves up to
like a thousand eleven hundred no no
going in front of q1 delivery numbers is
has only pulled back maybe I like 850 to
900 or not even behind 50 there’s no way
it’s getting me back into the six
hundreds but it can’t have a 10 to 15
percent pullback on a week q1 delivery
number and again I will share that with
you as we get into the first week of
April but that’s the next potential
catalyst short of you know I must be
resigning from Tesla if this thing is
gonna pull it have like a really nice
clean technical pullback I’m use and
that’s 10 to 15% would be what I’m
leaning towards unless the numbers a
disaster like let’s say below I’d say
below 90,000 deliveries maybe you would
get like 18 to 20 percent if they do
over a hundred thousand even though
that’s below the consensus word is right
now I think you might get a quick wick
it’s off to the races again and if they
somehow beat the current consensus which
I would expect to come down over the
next few weeks in the coming weeks if
they somehow beat 505 and somehow I do
110 the stock’s probably gonna go up you
know easily 10 to 15% and most already
trading above a thousand at that point
but that’s gonna be the next great point
potentially to get in if you’re looking
for you know capturing a longer longer
term move and that’s all I’ve been using
these cattles for each quarter is you
know for a spot to basically build more
of a longer-term position hopefully for
those of you are interested from you
know a longer term perspective how to
get involved in momentum stock we don’t
want to chase it to the upside you can
use kind of this longer-term chart and
understand the prices that I highlighted
there we had the top at 960 we have the
lower high at 9:40 you can see the
uptrend over the next few weeks it’s
gonna work its way to eat hundred
dollars a share if we can kind of break
that that bigger picture uptrend you
know we can get a pullback again to into
that 650 700 area oh and I promised you
I’m sorry the three YouTube channels
that I promised number one solving the
money problem the person who does this
channel he’s great bigger picture he
understands he’s been involved for Tesla
for years he’s going to give you really
good analysis kind of on the business
model where things are heading over the
next few years great videos the second
one is known as hyper change this is
focused on technology companies
disruptive companies I’d say about half
of his videos are related to Tesla it
was a really nice job previewing
potential earnings for the quarter in
terms of breaking down the margins and
things like that I think I’ve
highlighted some of his videos in the
past especially in October I think I
highlighted his quarterly analysis when
the stock was still trading down a 300 I
think if people watch that video would
have been pretty clear that this thing
had the potential to go a lot higher and
then finally the Tesla daily podcast
covers all the analyst upgrades and
downgrades where they are by the way on
the analysts they’ve moved up their
prices now a lot of ALS not a lot but
some are in the seven to nine hundred
range so I think the average car get has
probably moved up to the 550 600 so the
average analysts target was down at two
a couple months ago gonna move to 350
and I think now we’re in the 550’s
if I had to guess but as those targets
kind of work their way up to kind of 700
if we can get a negative catalyst like
the keulen q1 production delivery
numbers maybe that what will happen is
the analyst price targets will have
moved up to a level where then it will
sell off and they’ll meet and that’ll be
where everybody tries to get long again
from a longer big-picture perspective
see you next time
