Digital Social Hour: Tesla’s Overbought Reversal – What Traders Must Know | Ricky Gutierrez DSH #1109
Host: Sean Kelly
Guest: Ricky Gutierrez
Release Date: January 16, 2025
1. Market Overview and Overbought Conditions
Ricky Gutierrez opens the discussion by addressing the current market sentiments, emphasizing that many believe the markets are perpetually ascending. He challenges this notion by highlighting the importance of recognizing overbought conditions and anticipating potential reversals.
"Some people think that markets are going even higher. And that's really a conversation that I'm excited to kind of talk a little bit more about today."
— Ricky Gutierrez [00:34]
Ricky explains his trading philosophy, which focuses on long-term investments in blue-chip stocks rather than low-cap stocks. He specifically targets overbought and oversold reversals, which he describes as more methodical and less volatile trading strategies.
2. Tesla's Overbought Reversal
A significant portion of the episode centers on Tesla's recent stock performance. Ricky notes that Tesla surged by 54% over 16 trading days, primarily influenced by Elon Musk's involvement with the Trump administration—a unique and unprecedented catalyst.
"Tesla gapped up 54% in the past, like, 16 trading days. Obviously, the only catalyst when it came down to that was that he's part of the Trump administration."
— Ricky Gutierrez [01:08]
Despite the initial enthusiasm, Ricky points out that Tesla's earnings and guidance had previously dampened investor excitement. The sudden positive sentiment shift due to Musk's political ties led to an overbought scenario, resulting in a subsequent correction.
"We let it shoot up. And the overbought reversal in this sense was, we don't know how high it's going to go... once it begins to curl on over, it tends to correct itself because the hype ends up fading."
— Ricky Gutierrez [02:14]
Ricky predicts that Tesla's stock may continue to decrease to the $260-$315 range in the short term, despite his long-term optimism for the company's growth.
"I think that it's going even lower. I think that it can go down to 260 to 315."
— Ricky Gutierrez [01:41]
3. Trading Strategies and Risk Management
Ricky delves into his approach to trading reversals, emphasizing the importance of waiting for clear signs of a peak before initiating a sell-off. He shares his recent short position on Tesla, which yielded a 13-14% correction.
"Once it begins to actually indicate signs of a reversal... we're able to... correct ourselves."
— Ricky Gutierrez [04:00]
He underscores the necessity of disciplined trading, referencing the volatility seen in crypto and meme stocks as parallels to Tesla's situation. Ricky advises traders to set dollar amounts they can tolerate and to avoid emotional decision-making.
"Don't put yourself in a position in which you cannot tolerate. And also, if you cannot tolerate the time that it might take for it to recover..."
— Ricky Gutierrez [10:48]
4. Insights on the Cryptocurrency Market
Although Ricky doesn't primarily focus on cryptocurrencies, he offers valuable perspectives on the current crypto landscape. He expresses caution regarding the high valuations of Bitcoin and other cryptocurrencies, suggesting that the risk-to-reward ratio is unfavorable at current levels.
"What's the downside? Risk. Risk to reward just doesn't make sense there."
— Ricky Gutierrez [10:48]
Ricky advises against chasing trends without a solid understanding, highlighting the significant risks associated with overvalued crypto assets.
"What's the downside? Risk. I feel like risk to reward just doesn't make sense... The downside risk is so much greater."
— Ricky Gutierrez [10:55]
5. Shorting Stocks and Market Volatility
Ricky discusses his strategies around shorting stocks, particularly those influenced by hype or political events. He shares his experience shorting DJT, a stock tied to political sentiments, explaining how he capitalized on its volatility.
"I was like, I do believe that if Trump does win, why couldn't it go to $100 per share?... So I just didn't want to take."
— Ricky Gutierrez [26:39]
He emphasizes the importance of recognizing when a stock is labeled as "hard to borrow," indicating potential liquidity issues and increased risks in short positions.
"That's just showing you how risky that stock is. Or if that stock is labeled as a hard to borrow, there's a reason that it's hard to borrow."
— Ricky Gutierrez [27:16]
6. Trading Psychology and Techniques
To mitigate emotional trading, Ricky introduces the concept of the "blind trading challenge," where traders close their profit/loss panels and make decisions solely based on chart analysis. This method helps in maintaining objectivity and adhering to predefined trading plans.
"You close your panel and you trade solely off of the charts. So you should have an entry, exit, stop, loss."
— Ricky Gutierrez [28:38]
He recounts his disciplined approach during live trading sessions, sharing how he manages positions without becoming fixated on specific dollar targets.
"Trade the charts if you're going to be actually trading not the dollar amount that you actually want to hit."
— Ricky Gutierrez [29:49]
7. Real Estate Flipping Amid Market Fluctuations
Transitioning to real estate, Ricky discusses his ventures in house flipping alongside his business partner, Nick Palladino. They adopt a conservative strategy, ensuring that each project meets specific cash-on-cash return criteria to minimize losses.
"We don't have huge flips like that that yield that great of a return, but two or three or four of them a year, that's more than enough."
— Ricky Gutierrez [20:21]
He shares success stories, including a significant flip in Paradise Valley that yielded an $800,000 profit, demonstrating the effectiveness of their calculated approach.
"We do a rep split. I kept 80%, and then 20% went to the person that presented me the deal."
— Ricky Gutierrez [19:26]
8. Airline Industry Challenges
Towards the end of the episode, Ricky and Sean discuss the struggles of budget airlines like Spirit and Frontier. Ricky shares his personal experiences flying with these carriers, noting that despite their reputations, some of their planes are newer than those of more established airlines.
"Some of them are even newer than what I see from America."
— Ricky Gutierrez [23:16]
He expresses concern over Frontier's halted acquisition of Spirit and the potential implications for the airline industry, including financial instability and operational challenges.
"No way. Frontier backed out of their acquisition... I don't know how that whole restructure or who takes the hit or how it falls."
— Ricky Gutierrez [24:27]
9. Political Influence on Financial Markets
Ricky emphasizes the significant impact politicians have on financial markets, particularly through trading activities. He critiques the lack of accountability among politicians who engage in stock trading, questioning the fairness of regulations that allow them to profit from their positions of power.
"Why are these politicians creating laws and regulating companies that they're able to invest in? It just does not seem like a fair playing field."
— Ricky Gutierrez [31:30]
He advocates for more stringent measures to hold politicians accountable for their trading actions, aligning with Warren Buffett's stance on deficit reduction and fiscal responsibility.
"That's how we win more during those bull rallies, but then how much do you tolerate in loss and potential downturns?"
— Ricky Gutierrez [22:31]
10. Addressing National Debt and Economic Policies
The conversation shifts to the broader economic challenges facing the United States, particularly the national debt nearing $36 trillion. Ricky critiques both major political parties for failing to implement effective fiscal policies, which he believes exacerbate economic disparities and negatively impact the average American.
"We're nearly $36 trillion in debt and there is no change that is happening in how we are wasting our money."
— Ricky Gutierrez [31:30]
He stresses the urgency of addressing the deficit to ensure economic stability and prevent the burden of debt from falling on future generations.
"If we do not change the way that we are spending our money, that is something that 100% of the US population will be affected by."
— Ricky Gutierrez [33:09]
11. Closing Remarks and Follow-Up
In concluding the episode, Ricky encourages listeners to follow his trading activities on Instagram and YouTube, where he shares live trading sessions and insights on both the stock and real estate markets.
"You can follow me on Instagram or I'm also on YouTube. I have 1.2 million subscribers there."
— Ricky Gutierrez [39:42]
Key Takeaways:
- Overbought Markets: Recognize when stocks or markets are overextended to anticipate possible corrections.
- Tesla's Volatility: Elon Musk's political ties have significantly influenced Tesla's stock performance, leading to overbought conditions and subsequent corrections.
- Risk Management: Employ disciplined trading strategies, such as setting acceptable loss limits and avoiding emotional trading.
- Crypto Caution: At current valuations, the risk-to-reward ratio in cryptocurrencies like Bitcoin may not justify further investment.
- Short Selling: Be aware of the risks and liquidity issues when shorting stocks, especially those influenced by hype or political events.
- Real Estate Strategy: Adopt a conservative approach to house flipping, focusing on projects with solid cash-on-cash returns to minimize losses.
- Political Impact: Advocate for greater accountability in politicians' trading activities to ensure a fair financial playing field.
- Economic Responsibility: Highlight the critical need to address the national debt and implement sustainable fiscal policies.
Follow Ricky Gutierrez:
- Instagram: @ricky_gutierrez
- YouTube: Ricky Gutierrez Channel
This episode offers insightful perspectives on trading strategies, market analysis, and the interplay between politics and financial markets. Ricky Gutierrez provides valuable advice for both seasoned traders and those new to the investment landscape.