Has Tesla run out of gas?

You could feel it coming couldn’t you – the 300 pip wake-up call in the Dow on Thursday that rocketed VIX by 50%.  I asked VIP Traders Club members if the dip buyers will still be out in force as they have been for many months.  One day they will have their heads handed to them, and I wondered if on Thursday they were finally catching a falling knife.

The whole world seemed to be gearing up towards Peak Emotion – at least here is the UK and USA.  And  do not forget it is emotion that drives the moves in the stock market (and all other markets, of course).  But it is the stock market that is the most sensitive barometer of public mood.

I have written before about how confusion in society has reached some sort of limit.  That most basic of personal identifiers – gender – has become so confused they are teaching five-year-olds how to be of opposite gender if they wish.  And the recent proposal by the UK government that anyone can switch genders by simply ticking a box on a form.  No need for those pesky operations!  Simples.

And in terms of emotion, the recent kerfuffle in Virginia over the local authorities’ wanting to remove a statue of Robert E Lee the Confederate general, has to rank as a spike in emotional lack of control. Recently, there has been the removal of several Civil War statues in US cities prior. But I found the MSM and foremost the BBC full of their usual liberal outrage at Trump’s purported delay in blaming the uber-right groups, as usual.  For a more balanced discussion you needed to go to the backwaters of the blogosphere.

But my point here is that the conflict around the statue has become a litmus paper for the deep divisions in US society that are now re-emerging into the light. As an outside observer, there appears to be a plan by the Establishment to somehow get rid of Trump by any means – and none too soon.

They couldn’t nail him over the Russia connection (that has gone dead, suddenly – why?), so this statue thing provides a pretty weak excuse to try to nail him again.  But I guess that’s politics.

With the removal of a key ally, Steve Bannon (a former key Trump ally), it seems Trump has done this deal to appease the establishment Republicans in order to further his agenda, which was getting bogged down.  The natives were in danger of getting restless.

But it highlights the high state of emotion out there – and that is bearish for shares.  A bear market is one characterized by division, conflict, strife, anger, and especially secession – and that is why the looming Brexit is so very pivotal in the development of the upcoming bear market.  The EU, which has been expanding for years, will now get smaller after the UK leaves – and the tide will have turned.  It  also appears the list of nations that were wanting to join (including Turkey) is thinning.

I use the word secession deliberately as it is commonly used in connection with the US Civil War when the Southern States broke off from the United States, and who lead the army of the South in the war?  None other than Robert E Lee who was no rabid pro-slavery man, incidentally..

But mobs to not do nuance or truth. Today’s conflict in Virginia has more to do with the ongoing deprivation in the South compared with the wealthy North (and West) that remains even after the 150 years since the war ended.  And Charlottesville is a big university town and we all  know what that means – thousands of righteous left wing leaning students desperate for a cause to champion.

We saw an identical siuation in the UK recently at Oxford when an overseas student demanded the removal of the statue of benefactor Wilfred Rhodes, supposedly a brutal oppressor in colonial Africa.  The irony was that the student was on a Rhodes scholarship!  Mobs  and the outraged do not do irony.

But as the fourth wave down in the stock indexes develop, we will see more of these kinds of conflicts.  And in Europe, we are witnessing a continuation of the massacre of pedestrians on the street by terrorists driving a vehicle into them – the latest in Barcelona..  Again, it is the deprivation in North Africa that is fueling this.

Stocks take a beating

Once again, the MSM have tied themselves up in knots trying to ‘explain’ the sudden lurch south in shares.  One blamed it on Barcelona and the ‘unraveling’ Trump administration.  But we have had several similar terror attacks in recent weeks (stocks rallied) and suddenly most everyone accepts (that is, except your truly) the Trump administration is a cause for investors to worry.  The so-called business leaders that resigned (or were pushed) were obviously going to steer things their way in terms of policy and their departure at least means a more equitable policy has a chance to emerge.

Last week’s swoon has certainly done considerable damage to the bull market – and the record height of complacency that had built up.  Here is the S&P daily

I have the August 8 high at 2491 as my wave 5 of 5 of 3 and I forecast then that the market would move down in wave 4. Note my tramlines which the market has been following since March.  The upper one is noteworthy since it has a nice PPP, multiple touch points except for the Aug 8 high which failed to touch it in a tramline miss.  That is a sign of weakness and heralded the rapid move down to the lower tramline on Aug 11 within three days and then staged a hefty bounce.

I suspected this was a counter-trend rally and advised VIP Traders Club members to position short.  And with Thursday’s break of the lower tramline, odds are now high that we have started wave 4 down.

Note also the momentum,divergence at the Aug 8 high – another confirming factor calling for a downtrend.  Not only that, but the week of the Aug 8 high was also a weekly key reversal, which likewise is bearish.  The evidence is piling up that wave 4 – which should last a few weeks at least – has a lot more room on the downside before it turns.

The yellow support zone lies just below the market and a break there would confirm we are in a long and strong third wave down.  If so, the dip buyers will have very bloody fingers.

Has Tesla run out of gas?

Hardly a day goes by when this company and its electric vehicles are not on the front page.  Its founder, the irrepressible Elon Musk, has attracted a quasi-religious following and many investors are pining their hopes that their electric cars will take over the world.  The shares have rocketed in recent years and positive sentiment towards the electric revolution has swamped the many doubters who have been shorting the shares – and have lost big-time.  In fact, Tesla shares were one of the most shorted on the board and have suffered. But is now the correct time to enter shorts?

But the MSM have been relentless in promoting the virtues of electric vehicles – and the concurrent weakening of demand for oil with its bearish implications.  Just recently, the Economist magazine – usually noted for running major stories just as the trend has exhausted – has one entitled The Death of the Internal Combustion Engine.

Odds are good that this will mark at least a major high in bullish sentiment towards electric vehicles.  If Tesla shares do move lower, no doubt we shall see articles that will cast doubt on the ability of the batteries to overcome problems.  And when those articles appear in the Economist, the shares will be a buy again.

So that’s pretty conclusive then.  Oil demand will plummet.  So why did crude oil burst up by almost $2 yesterday?  I’ll tell you why – because we are still in a strong wave up that has not yet completed.  End of story.

As a contrarian, you have to pick your moment carefully to go against the grain.  So many have shorted Tesla not  on any basis of a rational technical analysis but on pure emotion – and have paid the price, so far.  Here is the daily chart

The massive bull run off the November lows has been pure textbook EWT.  Waves 3 and 5 are both fives and wave 5 completed the move.  And the initial plunge off the June highs was either wave 1 of what will be a five down, or ans A wave of what will be an A-B-C.  It is too early to say which will play out.

And the rally off that low is a clear A-B-C and took the market to the Fibonacci 78% resistance a shown on the 4-hr chart

I also have an important blue trendline with multiple accurate touch points and when the market pushed above it in a classic ‘overshoot’, that was my signal to start looking to position short.  The market duly obliged and moved down  in wave 1 then rallied in wave 2 and I took that opportunity to put out my shorts.

Now if this is correct, I expect the shares to fall hard in wave 3 of either 3 or C.  Either way, there should be a rapid move down to below the B wave low.  The key level is $370 – if we see a rally above that level, a different wave pattern is playing out.  But that is lower odds.

Very exciting times lie directly ahead.