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3/1/19
Thomas Thornton

Gravity

Gravity is working against me
And gravity wants to bring me down
Oh, I'll never known what makes this man
With all the love that his heart can stand
Dream of ways to throw it all away

Whoa, gravity is working against me
And gravity wants to bring me down
Oh, twice as much ain't twice as good
And can't sustain like one half could
It's wanting more that's gonna send me to my knees

Oh twice as much ain't twice as good
And can't sustain like one half could
It's wanting more that's gonna send me to my knees

John Mayer

Today's note is on Tesla and Elon Musk - If you have had enough of this, skip to the charts.

Elon Musk is a man at war with gravity in so many ways in his life.  First, he runs Space X which is the ultimate human expression of fighting gravity.  Second, he runs Tesla a revolutionary auto maker that regardless of what happens in the end, he changed the world by sparking an electric vehicle revolution.  I've driven every Tesla and they are cool cars but I've also fully done the work looking at the company  and stock from the fundamentals to the technicals.  When Tesla owners were asked by McKinsey what was their favorite part of driving a Tesla it was clear the acceleration which definitely cheats gravitational forces.  They also were asked if another auto maker released an EV what type of brand loyalty would they have and that score was very low.  The problems with Tesla are vast.  Customer service is atrocious.  People have resorted to going on Twitter and Tweeting at Elon which usually goes like this "Hi Elon.  LOVE my car, but it's been in the service center for ____ days/weeks and I'm not getting a response on when it will be done or when they will have the parts for the car."   There's also a problem with safety.  Autopiliot deaths (not approved by regulators but marketed by Tesla) and Whompy wheels (look them up) is something that the regulators haven't been able to fully address for some odd reason.   Tesla has had a 10+ year head start with massive Government subsidies and while in the lead with sales due to a lack of other auto maker offerings, they are running out of money and it's news for a $50 billion market cap company when they barely make a $920 million debt payment today.  Let's keep in mind, EVERY auto maker has been rigorously developing and testing EV's that are now hitting the market.   First mover advantage?  Nope not with Tesla.  

The next two issues are what I see gravity finally winning the battle over Elon Musk and Tesla.  First reality is starting to take hold with high level executives (CFO, Legal Council and many more) have departed ahead of last night's "news" that Elon previewed in the middle of the night a few nights ago on Twitter.  The good news is they are going to finally offer a $35k Model 3 which Tesla fans hail as a way to take over the world.  The bad news they will lose money on everyone of those cars and the  400,000 reservation holders seemingly are gone as there is only a 2-4 week wait time.  This was also the third price decrease on all three models in just two months.  Global car sales are slowing and Tesla won't survive even a quarter with demand drying up.  Elon last night on a private conference call, bizarrely said Tesla would not be profitable this quarter while raising the high end of delivery guidance for the year.  It's peculiar considering the written guidance after earnings were released had one number and Elon said another one on the call within an hour.  The final blow will be the SEC banning him from running Tesla.  In my opinion he got off very easy from the SEC with his "taking private at $420 funding secured" tweet and then while on 60 Minutes he blatantly insulted the SEC saying "he didn't respect the SEC."  And now he recently came out on Twitter with an unauthorized (he has a Tweet nanny) tweet with a pump guidance of 500,000 cars for this year.  It was followed quickly by a lawyer induced tweet correction.  Elon has until March 11th argue his case with the SEC as they want the judge to hold him in contempt for these unauthorized tweets.  His case will be tough to win without some real monetary fine and perhaps more with a corporate leadership ban.

Telsa is Elon Musk and without him it's a $50 billion market cap car company with $20 billion in debt and that market cap is larger than Ford and Fiat Chrysler combined with Tesla producing 250k cars in 2018 while Ford produced 6 million last year.  What people need to understand that this is a black or white story as Tesla can't live without Elon and if the stock drops below ~200-250 Elon is highly levered with his Tesla stock he will will get a deathly margin call from Morgan Stanley and Goldman Sachs.  He recently took out mortgages on four homes he owns in Bel Air for $61 million.  Why would a billionaire need to do that?  We'll soon find out!!  In my opinion, this is the most important stock story in 2019 and right now it's entering a death spiral.  I have a TSLA put spread idea below.  

Not much to note in the markets as they  levitate and go sideways with the backdrop of elevated sentiment.  ISM data was weaker than expected earlier today with the jobs data weak too.  Next Friday's jobs number will be watched close.  I hope everyone has a great weekend.  

US Markets


SPX bullish sentiment is at  73%


SPX daily starting to turn?  


SPX 60 minute tactical time frame sideways


S&P 100 stalling


Mid Cap turning?


Nasdaq bullish sentiment is at 67%


NDX Index stalling


NDX 60 minute tactical time frame sideways and below trend line


Dow Jones Industrial Average toppy


IWM Russell 2000 toppy


Microcap with some Countdown 13's

 
Hedge Fund Telemetry Trade Ideas

Trade Ideas Sheet - Long and short US equity ideas including ETF's.  We will be overhauling the Trade Ideas Sheets for long only, short only, ETF's when the new website rolls out soon.  There will also be a clearer email distribution with changes.  
Trade Ideas Changes:  No changes today on sheet but here's a Tesla put spread idea for May.  Don't go nuts with size people as it's high risk.  Consult with your financial advisor if you do not understand the risks with options.   TSLA MAY EXPIRATION:   BUY 275 PUT $21.50, SELL 225 PUT $9.00.  $11.50 TOTAL RISK.    TO ADD MORE RISK:  SELL THE 380 CALLS $5.00.  LOWERING TO $6.50 - POTENTIAL FOR 7.5X RETURN.  AGAIN HIGH RISK, TRADE SMALL.

 
Low Volatility and High Beta ETF's


Low volatility has been incredible but I expect that to change


High Beta with some Countdown 13's showing up

 
Airlines


Herve...  


Delta and other airlines are making multi year relative lows vs the SPX


DAL lower high and could see lower low into weak seasonality


DAL seasonality gets weak here


UAL might be a head and shoulders top here


UAL seasonality is not favorable

 
A couple stocks I'm watching


AMZN is a likely a day away from a Sequential 13


CRM with some Countdown 13's.  I really want to short this one.  Soon perhaps

 
Tesla last thoughts


Telsa short interest remains LOW.  And is a type 4 from Erlanger (long squeeze).  This is a risk for the stock to go lower without shorts present


This was a tweet a year ago from Elon regarding demand.  You can now get a car in 2-4 weeks according to the Tesla website.  Oh and by the way they closed most of the Tesla retail stores TODAY.  Now finally Chase can reopen the branch Tesla took over on Greenwich Av.  (for those who live here it's a standing joke that there are over 10 Chase branches in Greenwich and 3 on Greenwich Avenue already)

 
PPO Monitor - Percentage Price Oscillator

The PPO Monitor is a proprietary monitor developed to force rank Indexes, Sectors, and Stocks.  It ranks top down by strongest to weakest by percentage above/below the 50 day moving average.  Shorter term signals can be seen when the 10 and 20 day moving averages turn up (green) or down (red) which often are followed by the 50 day moving average.  This is useful to watch for historically overbought/oversold percentage above/below the 50 day moving average.  It is non correlated with the DeMark Indicators however we have found upside/downside exhaustion signals often occur when something rises to the top or drifts to the bottom of the monitor - increasing the timing aspect. We share this monitor with clients with Bloomberg Terminals.  An added feature is that each market/ETF can be expanded with each component force ranked in the same way.  A couple other features include price deviation from intraday VWAP (useful for intraday reversals) and new 20 day highs/lows on right side.  Please inquire if you would like to be permissioned to use the PPO Monitor.  

Today's highlights:  More ETF's under the 10 and 20 day moving average a sign of weakness and rotatation.   Bond ETFs hitting 20 day lows

 
Natural Gas


S&P 500 Members/Absolute Price Performance and Relative Price Performance vs S&P 500 and Sector ETF's.  ETF's vs Index Sectors.  Pair Trades.  Long side  is first symbol, short side is second symbol.  If you would like a PDF from Bloomberg with full details of how this is formulated, please email.  We will be doing a webinar in the coming weeks specifically on this system.


Natural Gas Futures on day 8 of 9 with Setup.  Will this continue into a Countdown?  


UGAZ 3x Levered ETF working on the upside

 
Currencies


US Dollar bullish sentiment is at 60%


US Dollar Index with a Setup 9.  Let's watch this close next week


Euro bullish sentiment is at 24%


Euro Spot with a Setup 9.  Let's watch this close next week


British Pound bullish sentiment is at 40%


UK Pound Sterling toppy and possibly completing 5 up waves

 
European Markets


Euro Stoxx 50 bullish sentiment elevated at 76%.


Euro Stoxx closed below mid point today

 
Total US Market ETF and World Markets Ex US


US total markets with more Countdown 13's


World markets ex US stalling

 
Global Markets


Bloomberg World Index with more Countdown 13's


EEM Emerging Markets ETF congestion in February.  We are out with a nice gain waiting for a dip

 
Asian Markets - Hong Kong


Hong Kong looks tired

 
Crude Update


Crude bullish sentiment is at 86% and remains extreme


WTI Crude Futures giving back yesterday gain

 
Gold Update


Gold bullish sentiment is at


Gold continues to drop and I'm holding short


Copper bullish sentiment is at 55%


Copper continues to look good but stalling under the wave 3 price objective


Copper vs Gold ratio custom chart suggest a little more upside

 
Bond Update


Bond bullish sentiment is at 69% and has room to go on the downside


US 10 Year Yield really starting to emerge higher


HYG price flip


TLT breaking to new recent low

 

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