New Trades: We're Shorting Tesla and the ARK Innovation ETF
Today we are shorting Tesla (TSLA) and the ARK Innovation ETF (ARKK). We also sold to close the remainder of our long USD/CAD position at the breakeven risk point. (The Decoder model portfolio uses intraday alerts and good-til-cancel stop loss orders to exit a position automatically if a risk point is triggered.)
Here are the details, with brief commentary and charts to follow:
Short: Tesla Inc. (TSLA)
Shorting at 223.76 or better (higher is better when shorting)
Risk point: 278.26
Position size: 23.30%
Short: ARK Innovation ETF (ARKK)
Shorting at 46.01 or better (higher is better when shorting)
Risk point: 53.72
Position size: 16.65%
In our prior TSLA short position we had two separate tranches, both profitable, with the risk point on both tightened to the profit-protective 242.08 level on Nov. 13.
We then exited the TSLA shorts at the profit-protective 242.08 risk point out of concern the risk-on rally, ignited by the short squeeze in U.S. Treasuries, could create a spike in TSLA.
The spike did not occur, though — perhaps because the electric vehicle (EV) outlook is so grim — and now the long-awaited Cybertruck announcement has come and gone and the shares haven't responded to that either. (We will have more to say on the Cybertruck and the state of the EV industry next week.)
Given Tesla's failure to participate in the risk-on rally, and signs it will again close the gap it had tried to fill in (see chart below), we see the opportunity to reestablish a TSLA short position here.
Meanwhile the ARK innovation ETF (ARKK), which we haven't been involved with in a while, saw one of its best single months in history in November on very light capital flows — and nearly all of the move looked fueled by a rally in highly speculative garbage stocks (the kind of names that are an ARKK specialty).
ARKK is now headed into overhead resistance in a range it has swung back and forth in for almost eighteen months, dating back to July 2022. With signs of the short squeeze running out of gas, this looks like an attractive window for shorting ARKK again.
Both of these positions also have value as an organic hedge against interest-rate risk for our basket of long precious metals stocks — another topic we'll dig into next week.
Until next time,
Justice Clark Litle Chief Research Officer, TradeSmith
TradeSmith is not registered as an investment adviser and operates under the publishers' exemption of the Investment Advisers Act of 1940. The investments and strategies discussed in TradeSmith's content do not constitute personalized investment advice. Any trading or investment decisions you take are in reliance on your own analysis and judgment and not in reliance on TradeSmith. There are risks inherent in investing and past investment performance is not indicative of future results.
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