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$SUPER MICRO COMPUTER INC(SMCI)$

Super Micro Computer (SMCI) stock opened higher on Friday but gains vanished in the first half-hour of trading. It made a sharp bearish reversal in heavy volume after topping a record high and plunge 20% into the close.

After hitting a new record high of $1,077.87 early in Friday's session, SMCI ended the day down $200 at $803.32, snapping a nine-day winning streak for SMCI and marking its biggest one-day percentage decline since August.

Dump or pump?

With about 33.5 million shares in the company changing hands on Friday, this marked its busiest trading day since its initial public offering in 2007, according data from LSEG.

Explosive moves such as SMCI's cannot be sustained. The stock had tripled from its breakout at 357 in January. The stock was more than 200% above its 200-day moving average.

Typically, if a stock is 70% to 100% beyond that line it is considered another sign of a climax top. In addition, the stock was more than 100% above its 50-day moving average, another sign of overheating.

Shares climbed 18 out of the 20 days to the peak, all in heavy trading with wide price spreads. In a climax run, stocks climb 25% to 50% in two to three weeks and show wide daily spreads from low to high.

SMCI to gain from rising AI demand

Prior to today's big pullback, Supermicro stock had been riding high on a wave of bullish analyst coverage and favorable indicators for the broader artificial intelligence space. On the heels of excitement surrounding AI-driven demand, Supermicro has been pushed into speculative territory.

While the business been serving up excellent growth and forward guidance that justify big increases for its valuation, there's still plenty of guesswork involved in charting the company's long-term business trajectory.

On the other hand, there are actually good reasons to think that the business will see powerful long-term tailwinds related to the rise of artificial intelligence. For the fiscal year that will wrap at the end of this June, Supermicro management is guiding for sales for sales to be between $14.3 billion and $14.7 billion.

Even at the low end of management's sales target, revenue would more than double on an annual basis -- and there's actually a good chance performance will beat expectations this year and in 2025.

For investors who are willing to weather potential volatility, today's big sell-off could be a buying opportunity. The median price target for the stock is $635.29, according to the latest data from LSEG. This is more than 20% below Friday's close but compares with the $390 median target on Jan. 16.

The great bearish engulfing candle sale?

⚠️ Trading tips: less risky- sell cash secured puts using the golden zone as strike price for 2-4 week’s expiration from Tuesday’s price action or buy the dip with calculated risk after good NVDA’s earnings and positive market sentiments. On the other hand, you don't need to trade SMCI to make money.

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