Hi everyone. In this newsletter, I’ll be looking at another semiconductor name:
Super Micro Computer, Inc. (NASDAQ: SMCI)
Among all the semiconductor stocks, SMCI has a very interesting chart. It has been consolidating in a bullish pennant formation since Mar’24 with higher lows and lower highs. RSI is putting in a hidden bullish divergence, while the Stochastic RSI has started to move out of the oversold region. Given that bulls are right 80% of the time, this is the more likely scenario.
However, an alternative interpretation is that SMCI is trading in a descending channel instead, and we might see a larger correction over the next few months. The uptrend we have seen since April might instead be a bearish channel before a larger move down.
In that case, how do we know which interpretation is correct?
For one, it’s whether SMCI can break over the bearish island gap created between 846.65-866.01. Even if it holds within the channel or the pennant, failure to fill this bearish gap will likely foreshadow a breakdown and move back towards the 50% Fib retracement at 727.80 (assuming swing low of 226.59 and a swing high of 1,229).
A more straightforward signal is whether SMCI breaks down below the pennant and ascending channel. If this happens, the bearish scenario will most likely take precedence.
On the daily chart, we can see the scenarios available to SMCI more clearly. Stochastic RSI is nearing extreme oversold levels, while RSI is nearing oversold levels. However, much will be dependent on whether the bullish structure holds or the bearish structure breaks.
Should SMCI hold the bullish structure, then it will very likely fill the 846.65-866.01 gap, breakout of the pennant and test the 963.30 level where it has rejected multiple times over the past few months.
In light of the technical setups available to us, I am cautious on SMCI given the potential of a structural breakdown. Thus, I am initiating coverage with a HOLD sentiment.
Sentiment: HOLD (New)
Summary (with Price Targets - NFA):
Trading in a pennant (bullish scenario) and in an ascending channel consolidation prior to a breakdown (bearish scenario)
Pennant breakout should see a move towards 963.30 and higher, while a breakdown below pennant and channel support should see a retest of 727.80 and lower
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$SUPER MICRO COMPUTER INC(SMCI)$ $NVIDIA Corp(NVDA)$ $Advanced Micro Devices(AMD)$ $Intel(INTC)$ $VanEck Semiconductor ETF(SMH)$
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