Mean Reversion Trade - Ticker: $SMCI

29 авг.

Setup: Mean Reversion Trade

Key Criteria:
1. The price has tested a prior breakout or breakdown level, a 15+ day pivot in price, a monthly or weekly Fair Value Gap (FVG), or a weekly/monthly gap.
2. Market Cap is above $10 billion.
3. The price swept highs, closed lower, and there is a gap between the open and the previous or second-to-last candle close.

Specific to SMCI:
* SMCI has a market cap of $25.9 billion.
* The stock closed with a relative volume of 4.90.
* SMCI is holding a major level at $400. I rate this level a 9/10 due to its psychological significance and the fact that it aligns with a weekly Fair Value Gap.
* The stock is down more than 50% in the past quarter.

Trade Details:
* Position: Long
* Entry: $445.90
* Stop Loss: $395.16
* Risk: 0.75% of account equity
* Order Type: Buy Stop Order

Targets:
* Target 1: $536 (1.3R) — based on resistance at a weekly Fair Value Gap.
* Target 2: $587 (2.79R) — also based on resistance at a weekly Fair Value Gap.

Exit Techniques:
* Scale out 33% of the original position size at the first target ($536).
* Scale out another 33% of the original position size at the second target ($587).
* Exit the remaining 34% of the original position size using the new 3-day low after the new high method, or by focusing on a Reason2Sell approach. This involves analyzing the daily and 65-minute charts each day before the market opens to determine if the stock is showing signs of strength or weakness.

Reasoning:

SMCI experienced a sharp drop of over 25% in one day, bringing it back near the breakout level of $350, from which it had previously surged to $1,229. The stock is currently trading around $440 and has held the $400 level well, indicating strong support at this key weekly Fair Value Gap. The trade aims to capitalize on the potential upside following this period of extreme capitulation, supported by daily consolidation, strong volume, and an intraday V-bounce pattern.

The stock traded with a large spread yesterday, and the initial stop loss from the entry point is 11.38%. This is significant, and I plan to add multiple positions if the stock tests below $420/$410 again. The goal of this trade is to catch the end of the capitulation period. With NVDA earnings now out of the way, semiconductor stocks may either continue to sell off or attract investors who perceive them as undervalued. The strategy is primarily based on weekly support levels, particularly $400 and $410, as well as the fact that the stock has declined significantly.

Stop Loss Strategy:
* The stop loss will be adjusted after the first profit target is reached and shares are scaled out.

Additional Notes:
* Set orders to automatically scale out shares. If the take profit (TP) is hit and you are still holding the full position size, manage your risk accordingly.
* If you have any questions, please feel free to ask. I am here to support and help you understand how to become a consistent trader.

Position Size:
* To be determined.