Over the past month or so, I've noticed that the market has become increasingly narrow. When we look at the Nasdaq Composite, it looks incredibly strong. However, the advance decline line shows a sharp downtrend. Stocks like Micron and NVDA have been absolute monsters, but beneath the surface many stocks are actually acting quite poorly. When faced with this type of market, the path becomes clear: be selective and only venture into the areas that the market is currently favoring.
This is why I decided to purchase SMCI earlier this week. Names like ARM, NVDA, and MU have been remarkedly strong this year. My thesis is that SMCI will start to move as well. I really like how the most recent base was built on low volume after the massive move earlier this year. SMCI has also delivered triple-digit earnings and sales its' last quarter which is something very few stocks can do. While I'm bullish on SMCI, I have a stop loss in place to limit my risk. With such a narrow market, I know this is not a time to get ultra bullish.
Risk right. Sit tight.
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Full Disclosure: I currently own SMCI.
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