To The Moon

Should you short or be bearish on SMCI at current levels?

On preliminary analysis, I will say no. 

My previous newsletter on SMCI sounded a warning signal to bulls that we would see a move lower should we break down from the (smaller) bull pennant pattern and the rising support trendline.

Sure enough, both broke and SMCI headed below 600 and eventually even 500.

Now, if I look further out at longer term support trendlines, I note several things:

Firstly, SMCI has retraced 78.6% of the move it has made since 2023. This is a level of last resort for SMCI as breaking and holding below 400 could spell death for the stock.

Secondly, SMCI has come back to retest this longer timeframe timeline as shown on my weekly chart. Moreover, the daily chart shows SMCI attempting to form a bullish divergence amidst a capitulation move following reports that (1) Hindenburg were short the stock, and (2) they delayed their 10K filing due to internal control and other regulatory issues. 

These factors, when combined, suggest that SMCI is trapping bears at lows and could soon reverse trend, even though the market is soon entering a seasonally bearish period. As the market moves towards the first official rate cut since the pandemic, I am expecting further front running into this cut before a significant move down, as was observed on other occasions over the years. 

But for now, stay safe, preserve your capital, and wait for dip buyers to exhaust themselves before shorting this name again. If that trend holds, forget about shorting it as the setup then presents a very poor risk-to-reward for bears.

I will be releasing an article in the coming days on SMCI, so stay tuned for more updates and a deeper dive on the stock!

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