Face Plant Thursday – Facebook Drops 20% and Takes the Nasdaq With It

BALANCE is the key to successful trading and this morning.

Wheeee, this is fun!

We made a very quick $2,000 on our Live Trading Webinar idea to short the Nasdaq (/NQ) into the close as Facebook (FB) dropped 20% on earnings disappointment. Poor Mark Zuckerberg lost $17Bn yesterday but at least we got our $2,000, right?  If only he would have listened to us and hedged his Billions into the earnings report, he could have protected his gains, right?

That's what hedging is all about – it protects your assets from future uncertainty and that's why we prefer to have short-term short positions in the Futures – our portfolios are already filled with long-term longs – we don't need more of those! BALANCE is the key to successful trading and this morning /NQ is down to 7,400 (where it can be played bullishly for the bounce) and that's another $1,200 per /NQ short.  We still have our /YM shorts and the Dow is still up around 25,450 and /YM pays $5 per point so even 1/2 of the Nasdaq's 1.75% pullback would be a 200-point drop, good for $1,000 per contract. 

Remember, I can only tell you what is likely to happen and how to profit from it – that is the extent of my powers….

Speaking of profits, in Tuesday's Morning Report we discussed using SQQQ as a hedge, picking up more Jan $10 calls at $2.50 and those should be about $3 this morning for a quick 20% gain against the Nasdaq's 1.7% loss so that's very good leverage on that hedge, giving you 12:1 protection on the way down but, of course, we're more worried about a major 10-20% correction in the Nasdaq than we are in a little dip like this.  I also said:

Oops, now there are rumors that China may be adding stimulus to their economy so no shorting yet – we'll have to wait and see how high we pop but hopefully 7,475 and certainly 7,500 will be a great shorting line on /NQ.

So all we did during yesterday's Live Trading Webinar was follow-through on our plan to short the Nasdaq around 7,500 from Tuesday Morning's Report, where we analyzed the top Nasdaq components and decided that all the likely good news was already priced in so shorting at the top began to make sense.  This is not about charts, we're not doing TA, this is Fundamental Analysis, plain and simple (we also made $1,500 per contract on Tuesday's dip from 7,475 back to 7,400).

The market has been saved, so far, by Trump's claim to be making a trade deal with the EU and, whether that's true or not, at least he won't be putting more tariffs on in the near future and that's a relief.  During our Live Member Chat yesterday (as well as a Top Trade Alert), we added a timely spread on Fiat/Chrysler – who had fallen too far over CEO Marchionne's sudden death.  Even this morning, you can still pick them up for $17, which is a market cap of $26.4Bn for a company dropping $3.5Bn to the bottom line so a p/e around 7.5 vs 7,500 for Tesla (TSLA) – which one has a better chance of being around in 2020?

Tesla has earnings next Wednesday and that will be fun.  We published a short for TSLA in our Morning Report of June 20th which turned a net $5,800 investment into $14,000 in 30 days for an $8,200 (141%) gain and, though we are fairly sure their earnings will suck, they are too middle-of-the-range to risk another short – especially since TSLA traders are famous for ignoring terrible results and latching onto whatever new BS Elon Musk spits out.  THEN we'll short!  

Last we heard, TSLA had $2.6Bn in cash as of March 31st and it's very likely they burned $2Bn in the past 90 days during their massive push to produce 5,000 cars in a week.  Even if you just consider the last 5,000 cars they produced in the last week of June, they couldn't have sold them and, at $40,000 per car cost (and I'm being generous), that's already $200M sitting around but what about the 2 assembly lines they opened under tents and the extra workers and the double shifts, etc?  That stuff adds up fast and TSLA was already buring $745M in the March quarter so well over $1Bn and very possibly $2Bn went out the window in Q2 and that might leave them with not enough money to fund Q3.  It's going to be interesting!