TESLA MULTI-FACTOR PREMIUM ANALYSIS+My Personal Story w/Trading
Updated
TESLA(TSLA) Ahead of Q3 2019 Earnings and the Medium-term: Series on Equities #3(12-15 Minutes read)
Just as an intro, fyi this is probably one of the most complex and well-detailed charts that I've done so far. The chart is based on a multi-factor Tesla decision tree. I know that at first sight it looks very chaotic, but I'll try to explain it as orderly as I can. Have to say that, the chart symmetry is well fitting to an exceptionally great extend. Naturally, if it takes me some time to analyse a chart to such extreme details(3 days), it will take you some time to understand it too. This analysis combines several approaches that will be analysed in three time horizons: long,medium and short-term. The multi-factor approach includes fundamental(idiosyncratic to Tesla), macroeconomic, geopolitical and technical(trend) factors. It excludes quantitative analysis, although from the decision tree drawn below, a quantitative model can be constructed. Even though my current recommendation is short, I believe that Musk in the long run, is capable enough to establish the company as one of the leading global auto manufacturers. At the end of this analysis, there will be the second part of this post, that is about my personal experience so far with charting and trading.
_________________________________________________________________________________________________________________________
Starting off with the idiosyncratic fundamental factor side combined with the macroeconomic and geopolitical risks. There are four major Tesla fundamental factors that I am looking at: net income, profit margins, deliveries and cash flows. Typically, I'd use a comparables approach, but since Tesla is still in their growth phase with highly volatile numbers, I think this would only make the analysis more confusing and won't add any value. So, how are Teslas' numbers doing? Obviously, not that well. Their operating margin is only 0.57%. Gross margin is doing much better (17.86%), which gives me some hope that Tesla could massively benefit from improving their vertical supply chain(Reference #3). Ultimately, having low margins, directly impacts their net income, and if this is combined with their recent acquisitions and Chinese expansion, that adds up to Tesla's cash burning outflows. Their recent debt and SEO issuance(Reference #1), adds further bullish doubts. The main issue is- how is Tesla going to cover their debt obligations(even at these low rates) with non-existent margins? They will most likely have to keep adding debt/issue even more equity. Currently as it stands, the fundamentals are simply not working out. Despite the relatively well recent delivery numbers, this negative shift in investor sentiment was reflected in the latest price drop to 176. This brings me to the Tesla decision tree diagram, that combines all of the factor approaches.
(Simplified Decision tree|The states aren't mutually exclusive(Ex. If the economy is good, chances are higher that Trump gets 2020)|On the left side Tesla's stock performance is compared to some of the top global auto manufacturers)
In my previous posts, I have thoroughly analysed most of the geopolitical and macroeconomic factors(linked in "Related ideas"), so I will just elaborate on how they apply to Tesla. Essentially, even if Tesla has a good start in China and their recent acquisitions work out(Reference #2), the risk of a prolonged trade war, could affect their business in China and if this is combined with the ongoing economic slowdown, it heavily skews the risk-reward to the short side. All of the risk-reward diagram states are labelled on the chart. The darker the shade, the more probable the outcome. Before I get into the technicals, a brief summary of the Tesla's time horizons linked to the decision tree.
Short-Term: Quite a lot of uncertainty. Depending on the trade war outcome and Brexit, in the worst case outcome, we could have a recession by the 2020 US pres. elections. One of the systemic issues that will add up to the negative investor sentiment, is the rising proportion of unprofitable IPO's that are just thrown at investors(Ref #4). What's already falling, in a recession, might as well crash. This systematic factor, applies to Tesla's profitability issues too.
Relevant VIX idea on volatility and uncertainty.
Medium-Term:If the economy survives until 2020, depending on who wins the election, we will have different outcomes. If Trump wins, the cycle could extend for another year. If any of the Democrats win, and as it looks it will most likely be E.Warren(Reference #6), we will have an economic contraction much sooner. Eventually, we will have a recession by 2022-23. Even if Trump wins 2020, his self-destructive nature will get him impeached, adding up even more uncertainty.
Discussing FED rate cycles and supercycles.
Long-Term: Assuming Tesla doesn't go bust or turns private and survives the next economic downturn, it'll be a good stock to have in a portfolio. Musk has about 10-12 more great years to lead the company. The market for biofuels and clean energy without a doubt will continue to expand. However, by then it seems that most large western OECD cities might ban cars all together, meaning that Teslas' strategic expansion into developing Asia will have a very positive payoff in the future.
Wrapping up the analysis with the technical side. The chart above ties up several carefully chosen tools and indicators such as: Elliott waves, Ichimoku cloud, (E)M averages, pitchfork band lines, fib. supports, cycles and obviously many channel trendlines. So, what are the technicals implying? Currently, the long-term trend in Tesla is neutral, within the ichimoku cloud. After the double-combo WXY wave, there seems to be a tendency towards an ABC or ABCDE contraction. In case Tesla break off above 365 (which is extremely unlikely), I would trade Tesla based on the drawn pitchfork that fits the current chart pattern extremely well. In the comments below, I will elaborate some more on the symmetrical shapes.
That's it for Tesla, there are many other factors that could be analysed, but I tried to keep it as short and precise as possible. If you have any question, feel free to send me a private message. Now, for the second part of the analysis.
_________________________________________________________________________________________________________________________
My personal experience so far in Charting & Trading
I got into trading at the start of the crypto bearish market, the very end of 2017. It was a way to divert my college anxiety and work on something complex that took my mind off boring academia. Even now I find it very relaxing in a weird way, while I am drawing charts(hope I am not the only one). I am glad that I made a tradingview profile right away, so now I can look back and laugh at my sh*t posts about bitcoin and other altcoins. On a serious note, from those same old posts until now, I can look back and see how far I've developed my charting skills and trading mindset. All these charts and assets that I post about, serve as my notes and in a way reflect the spirit of the time(ex. 2018 sell-off). This post about Tesla gave my a sort of a conscious realization about my personal development, and this is why I am writing about my personal experience.
So far, in less than two years of being involved in charting and trading, I've came to a conclusion on few things. Firstly and obviously, trading is not easy. It's not a job, it's a lifestyle. Just as most athletes have to constantly keep their bodies in shape, a trader has to always stay sharp and attentive. Most importantly, what speed up my development was my open mindedness. Any outcome is possible- never be fooled by randomness. Part of having an open mindset, is working on your personal biases. I highly recommend taking time off trading every month to reflect on your development. Realize what for is the market following such a pattern and not why you're making the trade. Do not confuse your biases, with your intuition. Most of the time, your biases do not allow you to make a precise conscious conclusion of your intuitional drives. One of the things that elevated my charting development was adding a behavioural finance and philosophical approach. This happened last summer. If you compare the dates on my latest charts, you'd clearly see the difference. I've taken some time off trading the last couple of months, in order to fully develop my macro ideas and this has payed off remarkably well. These would be some of my tips for anyone that wants to get involved with trading, and if you're already a long term trader I'd appreciate if you commented about some of your own best trading recommendations.
How do I draw my charts and what I am currently working on? All of my recent charts are drawn naturally. I take a complete freedom and time to draw every pattern and allow for it to form and fit naturally. No pattern should be forced, just because you want the chart to turn out the way you want it to. Obviously, everyone has biases and that's why technical analysis is as subjective as it is. My latest focus has been long term. Initially when I started trading it started off with day trading on 1-30 minute charts, and you can guess the result. It's pointless to try to beat HFT algorithms or compete with them. All experienced traders start of from a macro (large time frame) approach. Additionally, it's much less stressful to reposition your portfolio every now and then when more fundamental information becomes available, compared to getting blindsided and extreme stressed while day trading. Here, I have to say that I admire the few day traders that have stayed afloat and are profitable. Takes some guts and plenty of sacrifice to perpetually live that intense lifestyle.
To conclude this boring text that's an outcome of my boredom while being sick the last couple of days, I am proud of my work. Without a doubt, I've reached a decent level of understanding in trend and multi-factor fundamental analysis. Of course, there's more things to improve on, and there'll always be. What I am currently looking to learn and improve on, is about programming and writing scripts. If you have any tips or ideas on how to get started in trading related programming, please message me right away. Even if it's not programming related, but charting related topic or an idea, I'd be happy to answer whenever I am available. Thanks for taking the time to read thorough.
This was my short text about trading and charting. Hope that my insight is at least somewhat thought provoking and useful. All the feedback is very welcomed!
-Step_ahead_ofthemarket-
________________________________________________________________________________________________________________________
References on the Tesla analysis:
1. nytimes.com/2019/05/02/business/tesla-stock-fundraising.html (Corporate Structure & Financing)
2. youtube.com/watch?v=z2pP9hoIjT0 Explaining Tesla's latest investment strategies(acquisition, china expansion)
3. imgbb.com/ (Tesla's vertical supply chain)
4. ibb.co/MPtdRxk (IPO's Earnings trends since the 90's)
5. imgbb.com/ (Momentum versus Value strategy chart, sorry about the poor quality)
6. realclearpolitics.com/epolls/2020/president/us/2020_democratic_presidential_nomination-6730.html
_________________________________________________________________________________________________________________________
>>I do not share my ideas for the likes or the views. This channel is only dedicated to well informed research and other noteworthy and interesting market stories.>>
However, if you'd like to support me and get informed in the greatest of details, every thumbs up and follow is greatly appreciated!
Full Disclosure: This is just an opinion, you decide what to do with your own money. For any further references or use of my content for private or corporate purposes- contact me through any of my social media channels.
Just as an intro, fyi this is probably one of the most complex and well-detailed charts that I've done so far. The chart is based on a multi-factor Tesla decision tree. I know that at first sight it looks very chaotic, but I'll try to explain it as orderly as I can. Have to say that, the chart symmetry is well fitting to an exceptionally great extend. Naturally, if it takes me some time to analyse a chart to such extreme details(3 days), it will take you some time to understand it too. This analysis combines several approaches that will be analysed in three time horizons: long,medium and short-term. The multi-factor approach includes fundamental(idiosyncratic to Tesla), macroeconomic, geopolitical and technical(trend) factors. It excludes quantitative analysis, although from the decision tree drawn below, a quantitative model can be constructed. Even though my current recommendation is short, I believe that Musk in the long run, is capable enough to establish the company as one of the leading global auto manufacturers. At the end of this analysis, there will be the second part of this post, that is about my personal experience so far with charting and trading.
_________________________________________________________________________________________________________________________
Starting off with the idiosyncratic fundamental factor side combined with the macroeconomic and geopolitical risks. There are four major Tesla fundamental factors that I am looking at: net income, profit margins, deliveries and cash flows. Typically, I'd use a comparables approach, but since Tesla is still in their growth phase with highly volatile numbers, I think this would only make the analysis more confusing and won't add any value. So, how are Teslas' numbers doing? Obviously, not that well. Their operating margin is only 0.57%. Gross margin is doing much better (17.86%), which gives me some hope that Tesla could massively benefit from improving their vertical supply chain(Reference #3). Ultimately, having low margins, directly impacts their net income, and if this is combined with their recent acquisitions and Chinese expansion, that adds up to Tesla's cash burning outflows. Their recent debt and SEO issuance(Reference #1), adds further bullish doubts. The main issue is- how is Tesla going to cover their debt obligations(even at these low rates) with non-existent margins? They will most likely have to keep adding debt/issue even more equity. Currently as it stands, the fundamentals are simply not working out. Despite the relatively well recent delivery numbers, this negative shift in investor sentiment was reflected in the latest price drop to 176. This brings me to the Tesla decision tree diagram, that combines all of the factor approaches.
(Simplified Decision tree|The states aren't mutually exclusive(Ex. If the economy is good, chances are higher that Trump gets 2020)|On the left side Tesla's stock performance is compared to some of the top global auto manufacturers)
In my previous posts, I have thoroughly analysed most of the geopolitical and macroeconomic factors(linked in "Related ideas"), so I will just elaborate on how they apply to Tesla. Essentially, even if Tesla has a good start in China and their recent acquisitions work out(Reference #2), the risk of a prolonged trade war, could affect their business in China and if this is combined with the ongoing economic slowdown, it heavily skews the risk-reward to the short side. All of the risk-reward diagram states are labelled on the chart. The darker the shade, the more probable the outcome. Before I get into the technicals, a brief summary of the Tesla's time horizons linked to the decision tree.
Short-Term: Quite a lot of uncertainty. Depending on the trade war outcome and Brexit, in the worst case outcome, we could have a recession by the 2020 US pres. elections. One of the systemic issues that will add up to the negative investor sentiment, is the rising proportion of unprofitable IPO's that are just thrown at investors(Ref #4). What's already falling, in a recession, might as well crash. This systematic factor, applies to Tesla's profitability issues too.
Medium-Term:If the economy survives until 2020, depending on who wins the election, we will have different outcomes. If Trump wins, the cycle could extend for another year. If any of the Democrats win, and as it looks it will most likely be E.Warren(Reference #6), we will have an economic contraction much sooner. Eventually, we will have a recession by 2022-23. Even if Trump wins 2020, his self-destructive nature will get him impeached, adding up even more uncertainty.
Long-Term: Assuming Tesla doesn't go bust or turns private and survives the next economic downturn, it'll be a good stock to have in a portfolio. Musk has about 10-12 more great years to lead the company. The market for biofuels and clean energy without a doubt will continue to expand. However, by then it seems that most large western OECD cities might ban cars all together, meaning that Teslas' strategic expansion into developing Asia will have a very positive payoff in the future.
Wrapping up the analysis with the technical side. The chart above ties up several carefully chosen tools and indicators such as: Elliott waves, Ichimoku cloud, (E)M averages, pitchfork band lines, fib. supports, cycles and obviously many channel trendlines. So, what are the technicals implying? Currently, the long-term trend in Tesla is neutral, within the ichimoku cloud. After the double-combo WXY wave, there seems to be a tendency towards an ABC or ABCDE contraction. In case Tesla break off above 365 (which is extremely unlikely), I would trade Tesla based on the drawn pitchfork that fits the current chart pattern extremely well. In the comments below, I will elaborate some more on the symmetrical shapes.
That's it for Tesla, there are many other factors that could be analysed, but I tried to keep it as short and precise as possible. If you have any question, feel free to send me a private message. Now, for the second part of the analysis.
_________________________________________________________________________________________________________________________
My personal experience so far in Charting & Trading
I got into trading at the start of the crypto bearish market, the very end of 2017. It was a way to divert my college anxiety and work on something complex that took my mind off boring academia. Even now I find it very relaxing in a weird way, while I am drawing charts(hope I am not the only one). I am glad that I made a tradingview profile right away, so now I can look back and laugh at my sh*t posts about bitcoin and other altcoins. On a serious note, from those same old posts until now, I can look back and see how far I've developed my charting skills and trading mindset. All these charts and assets that I post about, serve as my notes and in a way reflect the spirit of the time(ex. 2018 sell-off). This post about Tesla gave my a sort of a conscious realization about my personal development, and this is why I am writing about my personal experience.
So far, in less than two years of being involved in charting and trading, I've came to a conclusion on few things. Firstly and obviously, trading is not easy. It's not a job, it's a lifestyle. Just as most athletes have to constantly keep their bodies in shape, a trader has to always stay sharp and attentive. Most importantly, what speed up my development was my open mindedness. Any outcome is possible- never be fooled by randomness. Part of having an open mindset, is working on your personal biases. I highly recommend taking time off trading every month to reflect on your development. Realize what for is the market following such a pattern and not why you're making the trade. Do not confuse your biases, with your intuition. Most of the time, your biases do not allow you to make a precise conscious conclusion of your intuitional drives. One of the things that elevated my charting development was adding a behavioural finance and philosophical approach. This happened last summer. If you compare the dates on my latest charts, you'd clearly see the difference. I've taken some time off trading the last couple of months, in order to fully develop my macro ideas and this has payed off remarkably well. These would be some of my tips for anyone that wants to get involved with trading, and if you're already a long term trader I'd appreciate if you commented about some of your own best trading recommendations.
How do I draw my charts and what I am currently working on? All of my recent charts are drawn naturally. I take a complete freedom and time to draw every pattern and allow for it to form and fit naturally. No pattern should be forced, just because you want the chart to turn out the way you want it to. Obviously, everyone has biases and that's why technical analysis is as subjective as it is. My latest focus has been long term. Initially when I started trading it started off with day trading on 1-30 minute charts, and you can guess the result. It's pointless to try to beat HFT algorithms or compete with them. All experienced traders start of from a macro (large time frame) approach. Additionally, it's much less stressful to reposition your portfolio every now and then when more fundamental information becomes available, compared to getting blindsided and extreme stressed while day trading. Here, I have to say that I admire the few day traders that have stayed afloat and are profitable. Takes some guts and plenty of sacrifice to perpetually live that intense lifestyle.
To conclude this boring text that's an outcome of my boredom while being sick the last couple of days, I am proud of my work. Without a doubt, I've reached a decent level of understanding in trend and multi-factor fundamental analysis. Of course, there's more things to improve on, and there'll always be. What I am currently looking to learn and improve on, is about programming and writing scripts. If you have any tips or ideas on how to get started in trading related programming, please message me right away. Even if it's not programming related, but charting related topic or an idea, I'd be happy to answer whenever I am available. Thanks for taking the time to read thorough.
This was my short text about trading and charting. Hope that my insight is at least somewhat thought provoking and useful. All the feedback is very welcomed!
-Step_ahead_ofthemarket-
________________________________________________________________________________________________________________________
References on the Tesla analysis:
1. nytimes.com/2019/05/02/business/tesla-stock-fundraising.html (Corporate Structure & Financing)
2. youtube.com/watch?v=z2pP9hoIjT0 Explaining Tesla's latest investment strategies(acquisition, china expansion)
3. imgbb.com/ (Tesla's vertical supply chain)
4. ibb.co/MPtdRxk (IPO's Earnings trends since the 90's)
5. imgbb.com/ (Momentum versus Value strategy chart, sorry about the poor quality)
6. realclearpolitics.com/epolls/2020/president/us/2020_democratic_presidential_nomination-6730.html
_________________________________________________________________________________________________________________________
>>I do not share my ideas for the likes or the views. This channel is only dedicated to well informed research and other noteworthy and interesting market stories.>>
However, if you'd like to support me and get informed in the greatest of details, every thumbs up and follow is greatly appreciated!
Full Disclosure: This is just an opinion, you decide what to do with your own money. For any further references or use of my content for private or corporate purposes- contact me through any of my social media channels.
Note
Path guidance based on most probably decision tree outcomes.
Note
Point (A) serves as a central pivotal point for the whole chart. The symmetry from the crossing trendlines is really mind-blowing. Point (A) is the equilibrium level where either supply gets ahead of demand or vice-versa. Haven't really ever gotten a pattern as symmetrical as this one with any of my previous charts.
Note
Point (D) is a similar equilibrium point. This is the reference to the Sand Clock Symmetric Equilibrium transformation. My guide to understand this pattern, is to follow the labelled triangles.
Note
Reference link #3 and #5 are not correctly linked, here are the correct links:#3 ibb.co/kxbYDPL (Tesla's vertical supply chain)
#5 ibb.co/b2Pm2nB (Momentum against Value Strategies)
I also forgot to elaborate on #5. Considering that lately momentum has been a leading strategy, a large part of momentum is the technical side of analysing. In my opinion momentum has outperformed value, mostly because of QE and HTF algorithms. Either way, anyone that completely excludes technicals in their valuation or trading, is ignorant to the significance of momentum.
Happy trading-
-Step_ahead_ofthemarket-
Note
I'll post updates like this one. Updated Tesla Investing Tree including interest rates, and another trendline that reflects probability of a recession increase even in a 2021 good economy, if Warren gets 2020.
Note
![DISNEY Momentum Strategy|End of Cycle[MEDIUM-TERM]TREND ANALYSIS](https://s3.tradingview.com/f/fNkz7c16_mid.png)
Previous post on Disney(DIS). I know this one is much simpler than the one above, much more understandable. Issue with Tesla is, that Tesla as a firm is much harder to understand, especially their poor margins and ratio. This is also reflected in the volatility. The monthly price range in Tesla %-tually is very wide. Could say this reflects on the Tesla chart too.
On the other hand, Disney's a market leader and a mature company, makes things more predictable.
Note
Ratios*.Note
Simplified Tesla chart that's much easier to understand. The pitchfork adds up quite a lot of complexity.
Note
Apologies for the typos, i.e "Dims" instead of "Dems" for Democrats.Note
Good job Elon, I think the fundamentals questions were all answered and this chart needs some updating. Currently at 0.382 retracement~308. I will post an update whenever I have time.Note
This chart is still valid. Could hit 400 again by may 2019. After that there'll be quite a lot of elections 2020 uncertainty. Either way, loads of shorts got covered post earnings. Shorts are still high in terms of %.
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