My Process – Long $SMCI

Last week I bought some $SMCI at $20.00. Here’s a quick post on what got me there.

1) How $SMCI made it to my watch list: I find investment ideas two ways – screens in finviz and following a select group of people on Stocktwits (investingsocial, you know?). This idea came to me from the latter. My strategy can be defined as trend following or momentum investing and my timeframe is ideally months – years. I ride winners for as long as possible. A great source for ideas in that strategy is the Social Leverage 50 list (formerly Stocktwits 50). I do not pay for that service, but I capitalize on the free information that Ivan puts out on Stocktwits. This is pretty simple – I follow the @SL50 stream and if a stock is mentioned there that seems like a potentially good idea I add it to my watch list. My watch list is a google spreadsheet and I have a column where I keep track of the source of the idea (what screen it showed up on or who posted about it on ST). After looking back at this idea I thought I’d check out the new Stocktwits search function to see what actually caused me to put it on watch (the search function is pretty cool – put in two terms $SMCI and @SL50 and found the exact post I was looking for):

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I have followed Ivan and the Stocktwits 50/ Social Leverage 50 list long enough to know that they are trusted and smart sources that follow a similar strategy that I do. So when I see a name that is on that list I pay attention.

2) From Watch List to ‘Ready List’ – I have 3 lists that I try to add to and prune as much as possible – watch, ready, and action. Watch has about 200-300 names, ready has around 50 names and action has 0-10 names typically. One post by a source that I trust is enough to get a stock on my watch. I scan charts of the watch list every week to see what looks good technically. I keep this simple – weekly charts with minimal noise and monthly charts with price and volume only:

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Looks good, right? On to the ‘ready list’. (not sure why I call it the ready list – should probably be the ‘getting closer’ list. whatever.)

3) Ready to ‘Action’ – this is where a bit more analysis goes in. Researching company, looking at growth numbers, checking when earnings are, checking what trend the stock may or may not be involved in and what potential catalysts may be. I’d like to elaborate more on this specific stock but the truth is that it was mostly a technical decision for me. And a post earnings play. I understand what the company does, but I’d be lying if I said I knew much more. And that’s okay with me because I know how to manage risk. This stock got earnings out of the way and gave some very clear levels to watch and pay attention to.

Main thing I noticed: 4 year breakout with major volume, a retest of the breakout and then a major bounce off those levels with volume.

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Then I look shorter term:
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Ugly bar on earnings day, but support between 19-20 is obvious. So then I set up a trade using a simple spreadsheet I created (example using a 100k portfolio).

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Some things to note: .33% risk is less than what I usually risk. However, overall market is not favorable for my strategy so I make changes to reduce risk (and stress). Another strategy is to relax and sit in cash until the overall market looks stronger. But I have missed some nice setups in the past because of that strategy. So I reduced position size but still made a move on $SMCI.
Another note: $18.75 is a fairly tight stop for someone who claims to hold stocks for ‘months to years’. But, just like the risk %, I don’t like the overall market action much right now so I tighten things up. If the market turns up things could work out well. If the market goes south, I take my small loss and learn from it.

That’s about it. Thanks for reading and please ask questions or give feedback.