The S&P 500 index has made a sustained move higher from its October low off the rotation to value or low price-to-earnings ratio stocks. Issues in the growth sector have been left behind for the most part, and the kingpin of these issues is Tesla Inc TSLA.
To better illustrate this point, the issue made a new low for the recent move on Tuesday at $166.19, which is well beyond its October low ($198.59).
On Wednesday, the issue caught a strong bid that was instigated by a backhanded upgrade from Citigroup. The firm upgraded the issue from Sell to Neutral and raised its price target from $141 to $176.
Tesla analysts have been muted over the last few months. In fact, this was the first rating change since September, when the automaker had a pair of upgrades from Needham and Wolfe Research.
On Friday’s PreMarket Prep show, the question was posed of whether the slight uptick in Tesla may spill over into other issues in the beaten-down sector.
The Growth Stock Setup: Co-host Dennis Dick, from whom the idea originated, emphasized a few important things for this scenario to come to fruition.
First of all, the trading setups discussed were short-term in nature, perhaps for swing trades. The issues discussed were not going into Dick's long-term portfolio and were pure contrarian calls based on recent price action in Tesla.
More importantly, Tesla has to continue to rally or the crux of the thesis is not valid. Finally, all the setups discussed have identifiable exit points if the rallies do not materialize.
Growth Stock Candidates: A plethora of issues fit in the category of oversold and depressed price levels in the growing technology sector. Perhaps the second most widely followed issue besides Tesla in the arena is Ark Innovation ETF ARKK. In fact, as this article is being written, the issue is less than $4 from its recent low ($32.51) as it changes hands just under $36.
It should be noted the low was just under its March 2020 low ($33), which set the stage for its parabolic run to $159.70 in February 2021.
Other issues mentioned were Upstart Holdings Inc (NASDAQ; UPST), Carvana Co CNVA, Affirm Holdings Inc AFRM, Fubotv Inc FUBO and Amazon.com, Inc. AMZN.
Not Yet: As always when trade set-ups are discussed on the PreMarket Prep show, they may not play out immediately or in some instances not all. As of 11 a.m. EST, Tesla is flat on the session, as it faded off its higher open.
The decline found buyers well ahead of Wednesday’s low ($172.50), only reaching $180.63.
Since making that low, it has been trading actively around Wednesday’s closing price of $183.20.
Similarly, many of the issues discussed are trading flat or slightly in the red.
Tesla Moving Forward: Although Tesla has not blasted off and dragged the sector higher, it is not unusual for an issue to pause and consolidate after a big move. Keep in mind, Friday is an abbreviated trading session trading on much lower-than-average volumes.
For the issues discussed, many of them in the red have found support ahead of their lows from Wednesday. Investors attempting longs in any of these issues should employ risk management strategies that are in accordance with their own investing metrics.
The discussion from Friday’s show on the topic can be found here:
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