Seems like everyone these days is talking about Elon Musk, Tesla, Inc. (NASDAQ: TSLA), and Twitter…
It’s a juicy story.
He’s firing Twitter executives and employees. Banning accounts and reactivating others…
He’s also dumping shares of Tesla to finance his purchase of Twitter…
Just last week he reportedly dumped $3.6 billion worth.
Journalists and analysts want to poke fun at his potential downfall…
Others just want to profit from him … Every trader and investor loved him when TSLA went up for 8 years.
Now some are betting against him and shorting TSLA.
Long-biased traders or swing traders might be trying to buy the dip.
If that’s something you’re thinking about doing, here’s why I think it’s a bad idea — at least right now…
TSLA Hit New 52-Week Lows
On Friday, TSLA hit new 52-week lows.
The stock has lost roughly 63% from its all-time high. Most of that loss came over the last year.
So you might think this is a great time to get into TSLA at a low price and hold some shares.
But there are dangers with that idea…
First, you don’t know how low it can go.
There’s no support level on the chart for you to use as risk.
Second, the stock is very news dependent right now. Any headline about Elon or Twitter is whipsawing the stock…
And lastly, Elon himself is selling shares.
Now, obviously, I don’t think that means he doesn’t believe in the company. He needs the money to fund his other projects.
But when an insider sells shares it can create a ton of pressure on the stock price. Especially with the amount of size that’s getting sold.
Now, I’m a long-time Elon and TSLA fanboy. So I’m not telling you not to trade TSLA. But there are things I look for before dip buying stocks — no matter how much I believe in them.
What to Look For Before You Buy The Dip
I’ve said this multiple times on my weekly watchlist when stocks like Amazon.com, Inc. (NASDAQ: AMZN) and Meta Platforms, Inc. (NASDAQ: META) were falling off a cliff…
You don’t just jump into stocks making new lows and try to catch a falling knife.
What I like to see in these real stocks before I dip buy is some solid basing action…
I want a stock to put in a support level that holds for at least a few weeks, if not months.
That way when I pick an entry with one of our patterns like a red-to-green move, I have a solid risk level.
And I can ride up the bounce and take profits at the next resistance level.
Right now, I can’t make that plan. Because a trading plan isn’t complete without a risk level.
And the longer a risk level holds, the more solid it can be. So this might be on my watchlist one day, but right now I’ll keep an eye out for a support level to form.
I don’t play guessing games.
If you want to learn from me, get my top trade ideas and plan in Pre-Market Prep every morning.
Joining can also give you another way to profit off Elon’s Twitter purchase … And not in the way you think…
Have a great day everyone. See you back here tomorrow.
Tim Bohen
Lead Trainer, StocksToTrade
P.S. I’ve started my 12 days of Christmas on Instagram. Follow me at @tbohen to get a new trading resource every day up until Christmas!