Here’s your trade on $AI – April 5, 2023
AI ( NYSE: AI ); this thing was like Icarus a few days ago. You can see it broke out, if you are trading at all you were aware of this. This had a huge breakout here on massive volume, and I will be the first to say, I really looked at this absent this big move here before this happened. I was seeing this as a really, really nice move with a lot of potential for even higher prices.
I was not really thinking about the possibility that somebody’s going to publish an article, whether it’s true or not, I don’t know, you have got to just pay attention to the market. Where they are going to publish an article accusing the company of, shall we just say, accounting irregularities?
It was a pretty scathing letter and it took a day for C3.ai ( NYSE: AI ) to come back and say, “Well, that’s all fantasy and you are basing it on some supposition, all that stuff.” But the fact remains that this stock is down significantly, almost 40 percent from where this high was.
Now, we have seen this before, a few times. However, here it is. Here’s what I think; here’s what I am looking for. I think the stock is actually finding support right about where it is now. You can see it, 21.00ish, that type of thing. But $20.00 sure seems like the more logical level of support. it is where it bottomed several times before. I would even say this, 1, 2, 3, 4, 5, 5 different days when we have had this pullback and then it has found support.
So I would really, really look hard at this as a potential level of support again tomorrow. I look at this as kind of a bounce play, you could call it a dead cat bounce if you want to, I don’t want to tick off the SPCA so I will just say it’s a bounce play. You see this massive volume yesterday.
Now, this volume today is still about twice the average volume. I will pull this back and let‘s just see where the last 20 days of volume is. It really just kind of takes into account this, this is still massive volume today. But compared to yesterday, it was over 100 million, today it is 52, so this is half the volume we had yesterday.
Also, the range is less, so this was a big massive dump. This is like a guy who overeats too much at a chili cook-off. It was that kind of a dump, 26, and then just another 14 today, so not a big pullback relative to the prior day. So I look at this $20.00 level as an area where you might consider taking some stock.
Now, don’t be doing it with this hope, hope isn’t a good trading strategy, though it is a very common one. Instead, look at this as a potential to buy the stock and then put on, what I call, a covered straddle. First, you have got to make sure the stock rebounds. You don’t just want to do this on a falling knife because 15.00 looks like good support too. But you wait for the stock to bounce, then you buy the stock.
You can sell a $20.00 put and a $20.00 call. You get plenty of premium because that is right at the money. And then you’ve got a really, really nice trade, where your cost basis on the stock can be really, really low as long as the stock rebounds. And if it doesn’t rebound you still get to keep that premium, you are just going to have to buy more of it at the $20.00 level.
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