Good News For The U.S. Indices; A Nice Trade In Tesla


It’s been a choppy week for the S&P 500 as opening waves of selling attempted to knock the index from its record-high perch. But as has been the case all year long, dip buyers are never far away and the index stubbornly remains within a handful of points of those all-time highs.

As I often remind readers, how we start a day is far less important than how we finish it. And by that metric, the last two sessions have been constructive despite Tuesday’s 0.7% giveback. Monday’s early weakness bounce decisively and ultimately finished at another record closing high. Tuesday’s follow-up dip didn’t bounce quite as hard, but it was good enough to push prices back to what would have been a record close just a few days ago.

Eventually, we will come across a dip that doesn’t bounce, but so far this rally continues defying the skeptics and we have to give it the benefit of the doubt. At this point, we have two key levels to watch, Tuesday’s intraday lows near 4,420 and recent support near 4,400. Hold above these levels and we have nothing to worry about. Fall under and we must shift to a more defensive mindset.

Wednesday’s open and subsequent price action will give us a good hint about what’s coming next. Open in the green and rally from there, then the worst is already behind us. Start the day red and crash through 4,400 support and the selling still has a ways to go. Anything in between and we take a wait-and-see, with a close near the highs being more bullish and a close near the lows being more pessimistic.

But as I said, as long as we remain above 4,400, reports of this bull’s demise are grossly exaggerated.

Tesla (NASDAQ:TSLA) crashed through $700 support on Monday following a government investigation into its Autopilot feature and the selling continued on Tuesday. Savvy traders lifted their stops near $700 and were locking in nice profits as this stock rolled over Monday morning. But that was then and this is now.

What comes next for this stock? Well as obvious as this sounds, either prices bounce or they don’t. For the moment, this isn’t on solid ground until it gets back above $700, but the most adventurous can buy Tuesday’s midday bounce with a stop under the early lows. Start small, get in early, keep a nearby stop, and only add to a trade that is working.

If prices fall under Tuesday’s lows, no big deal, get out and wait for the next bounce.

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