Hey Folks!
Your friendly financial researcher Damian here!
As you might remember – Charlie’s last emailed trade idea (BRDS) went up around 130%+ at highs.
And I want to start today’s email by highlighting Charlie’s top trade idea for this week: JFBR (Jeffs Brands)
Charlie wants to put this stock on your radar for several reasons.
A) It has previous history of “spike-ability” (sometimes 100%+).
B) The company is aggressively expanding into AI (signed a letter of intent with SuperBuzz for integrating ChatGPT & other AI software)
C) They are attempting to use this AI integration to grow their Amazon e-commerce business.
D) Their cash position is strong & dilution risk is reasonably low.
E) The chart looks primed for a breakout.
Now… of course nothing is ever guaranteed and you must do your own due diligence.
Nonetheless – Charlie wants to make sure you have this on your radar before tomorrow! This could have an exciting couple of weeks..
Click here to get Charlie’s just released detailed video breakdown on this stock.
Now outside of Charlie’s top idea – there’s a lot going on right now in the AI sector..
You see, towards the tail end of January and March we saw massive hype rallies in the stock of any company that cared to utter the words “artificial intelligence” in a press release!
As with most things in the stock market though, things move Fast!
Today’s excitement becomes tomorrow’s fade, yet if we look at the most recent downtrend, it should become pretty obvious…
There is more to this story than AI no longer being the cool kid on the block. It is coming back in a wild boisterous way.
You see if it was simply a trend falling out of favor we would would likely see a slow decline into obscurity…..instead it turned out to be a bloodbath led by hungry short-sellers.
We saw 40-50% declines across many stocks that were riding the coattails of the AI hype train.
As it turns out, the downtrend didn’t come out of thin air…
Kerrisdale Capital published a negative research piece claiming that the company C3 AI had accounting and disclosure issues in some of their financial statements.
Its also curious to note that Kerrisdale disclosed that they are short C3 AI shares as well…
So is this a case of a classic “short and distort” campaign, or truthful rhetoric that happens to benefit the party in question?
Its difficult to say at this point, but what you should be asking yourself is this……howcan I benefit from the current situation?
Firstly, it’s important to keep in mind that during euphoria cycles the price of stocks tend to be over-inflated, but in panic cycles prices tend to be under-inflated. This means that the killing of one hype cycle allows for more potential running room in another.
Now, it’s important to keep track of technical and fundamental factors across different stocks in the AI space, to see whether they are poised for another hype rally.
Let’s go through a few…
Stock #1: C3 AI [AI]
Although Kerrisdale Capital may not agree, I believe that there are a lot of interesting elements surrounding $AI that are worth discussing.
C3 AI flagship products are a series of AI applications spanning a broad range of industries. In addition, to their pre-built applications they offer an all in one platform that allows clients to build customized Al applications that fit their individual needs. Since it is all under one integrated platform it allows for a greater level of efficiency.
Product mumbo jumbo aside……one of the most important things about a potential momentum play is the crafting of a compelling story, one that can draw intrigue and hype.
In addition to being an AI company, C3 AI has also been making strides in the clean energy space. In September of 2022 they introduced an Al app catering towards ESG compliance, and in March they added a prominent name in clean energy to their board of directors.
Is all of this just a form of political and social pandering?
Maybe…..but they paint an enticing story for the company that has the potential to generate hype!
With C3 AI in particular, we have already seen that it has a history of reacting to sector trends…
During the full Al sector hype trend, the stock ran from $10 all the way to $35 before the company was hit with the short seller allegations.
Now it wasn’t all berries and roses for $AI in that time period…
After the initial rally, the hype in the AI sector noticeably dipped towards the beginning of February and did not come back until the end of March. C3 Al’s price action went down with it.
There was a spike in $AI towards the start of March…but that was largely due to company earnings.
Now, in terms of potential opportunities going forward, it will be important to pay attention to previously held support and resistance levels.
Despite the stock dipping after the initial wave of AI hype wore off, a clear support level was established around $20, which was retested twice.
Following the earnings rally in March, it also became clear that a resistance level was established around the $29.50 price point. In fact…..prior to the short seller report being released, the price broke above $30 with aggressive momentum, further validating $29.50 level as a key one to pay attention to.
You may be asking yourself…..what does all of this information tell us?
It tells us that Kerrisdale Capital will be looking to ideally push $AI below $20, and keep it from going past $30.
Between $20 and $30 will be battleground area for bulls and bears alike.
I would definitely keep an eye on C3 Al if they manage to stay above that crucial support level, and monitor for signs of price strength.
Obviously its always important to have a clear trading and risk management strategy…..but in this case its extra important with the short sellers breathing down their necks!
Expect to see Kerrisdale and C3 AI go back in forth with the allegations, each trying to get a foothold on the euphoria/fear dynamic of the market!
Stock #2: BigBear.ai [BBAI]
BigBear.ai is another company that focuses on application based Artificial Intelligence. The bulk of their revenue comes from government and military defense contracts – offering their Augmented Analytics Solutions.
The company has been putting an emphasis on obtaining more commercial contracts, comprising approximately 10% of their total revenue for 2022 from only 1% in 2021.
Speaking of contracts…..$BBAI has a recent of history of reacting to new ones!
Just take a look at what happened to the price action after they announced a nine year $10 million contract with the US Air Force…
The stock rallied over 200 percent, before the market realized it was an overreaction and corrected.
I hear what your saying…..what use is this to me if it already happened!
The fact is, seeing a stock’s spikeability to catalysts is a very important elevating factor, because it means that it’s more likely for it to happen in the future.
Now, this doesn’t even take into account the impact the AI hype train had on $BBAI…
Given their firm footprint in the AI space, it’s not particularly surprising how well $BBAI reacted to the initial hype.
Interestingly, they didn’t do nearly as hot on the second leg…
Granted this was in part due to the Kerrisdale Capital short seller report killing AI euphoria prematurely, but I would have expected a bit more juice given the violent uptrend the first time around.
So where does this leave us going forward…
Given that the short seller report was directed at a different company its unlikely that it will have as long of a residual effect on $BBAI.
That being said, it can still suppress the overall AI sector hype.
From a technical standpoint, we don’t have as clear of pattern here as we did with $AI, however there are still some interesting things to note.
A weak support level formed for $BBAI around $1.85 price point. You may be wondering why we didn’t chose the level at $1.50 as a support…
Although price action did temporarily dip below our $1.85 level, the lower price was not sustained – nor did we see previous instances during the AI hype cycle of that price point being hit.
All of these factors suggest that a $1.55 support level would be of lesser significance.
Setting a Resistance level was also not a clear cut affair…..however the $3.35 level shows multiple instances of being tested. The times when the price did break above, the old resistance level showed signs of acting as a new support.
All that being said…
It would be wise to pay attention to what the price action does in the coming weeks.
If it breaks below support, this could be a sign of more bearish momentum to come. One should look at it with a degree of skepticism though, as the $1.85 support level has shown to have false breakouts in the past.
If the price of $BBAI approaches resistance, then it may be wise to pay extra attention to technical and fundamental elevating factors, as the price action has shown the potential for bullish momentum at that price level.
Stock #3: Guardforce AI [GFAI]
Guardforce is an AI company with a focus on Robotic applications to artificial intelligence. The demand for Robot applications in a variety of industries such as hotels and security is rapidly growing, especially in East Asia.
Since the functionality and tasks required from the robots vary widely from industry to industry, Guardforce AI is also looking to sell a SAAS product with the robots themselves.
The robots are software based, allowing them to implement advertising capabilities with data feedback, which they can sell to a 3rd party.
In fact, they closed an advertising contract on February 26th for their Macau based robots.
Let’s turn our attention fromthe company Guardforce to the stock…
Just like our other examples so far, $GFAI made quite the splash in January!
The stock rallied over 400% in the AI hype cycle from January to the beginning of February…..however $GFAI conducted a 1-for-40 reverse stock split around the same time that the initial Al trend started cooling off.
Reverse stock splits are a strong deprecating factor because it’s usually a sign that a company is in danger of being delisted from an exchange, in this case NASDAQ.
This is a likely reason why $GFAI dropped below December and January levels between the 1st and 2nd AI hype rallies, something that our previous two stocks didn’t do.
Having said that, the stock did show some positive signs during the 2nd hype cycle, and was carrying strong bullish momentum before it got derailed…
This leads us to the present day.
As with our last example, the setup from a technical standpoint isn’t as clear cut…
In this case we have two different support levels that have shown to be relevant.
The higher support level at around $9.25 has shown to be the stronger one, due to being retested as both a support and resistance level multiple times.
The lower one at $4.00 was only retested a few times during a short timespan making it less powerful.
Having said that, both of them are relevant enough to be worth discussing here.
All of this is to say that ideally we want the price action trading above both support levels…
If it’s trading above the $9.25 level, we should be paying close attention to elevating factors to assess for potential opportunities…..but if it breaks below one or both, we should be careful of a wave of bearish momentum.
Likewise, if it breaks above the $22.50 resistance level, then it’s more likely that the bulls will be in control of the price action.
Stock #4: SECOO [SECO]
SECOO is an e-commerce company that focuses on selling upper end luxury items and services, they are one of the largest such retailer in China.
You may be thinking to yourself…..what does e-commerce have to do with generating Al hype
Well on February 6th SECOO announced that they would be researching technology similar to ChatGPT’s and integrating it into their platform targeting, for an improved customer experience and better conversion.
Now, it may sound a bit convenient that a company decides to drop that bombshell right at the peak of AI hype…..and that’s because it probably is.
Needless to say, investors totally ate it up!
The stock ran more then 150%, over a seemingly half baked attempt to make SECOO look like an AI company!
As you may have already guessed by now…
This is great news for us. It means that the company has established itself as potential AI hype play, which makes the stock more likely to run on future catalysts.
In fact, it the stock has already shown its capabilities of running on this trend again because well…..it already did!
The stock built somemomentum in the 2nd AI hype cycle, before it got derailed by the Kerrisdale short seller report……and if we needed anymore proof that SECOO’s move towards “artificial intelligence” is a complete farce, the company conveniently released an update on AI technology integration just in time to catch the next hype trend.
Ultimately though…
It doesn’t matter whether AI is actually being used by the company, what matters is whether they can sell the story…..and so far, they certainly can!
All of this builds an interesting case for $SECO, but what do the technicals show us?
It looks like the release of the short report effectively solidified a resistance level at $1.65, since old support became new resistance.
For the price action to build any serious momentum, it likely has to get past the lower resistance level. Obviously the more consistent bullish momentum it can build as it runs through the lower level, the higher chance it has of breaking above the $3.90 resistance level…
On flip side of the coin though, if price action drops below the $0.52, it would potentially turn old support into new resistance while simultaneously hitting all time lows for the stock…..something we definitely don’t want.
Stock #5: Bullfrog AI [BFRG]
Let’s switch our focus to the pharmaceutical sector…
Well…..not exactly. Bullfrog is still a predominantly AI focused company, but they operate within the confines of the pharmaceutical space.
Pharma is a growing industry that is projected to bring in over $800 billion in the US alone by 2028, with an expected CAGR of 6.3%.
This is where Bullfrog AI comes in…
Their bfLEAP platform helps analyze drug development data. Obviously in an industry where drugs are one of its biggest products there is tremendous potential in such a platform.
Unfortunately for the company, they IPO’d on February 14th……which means they missed the first AI hype cycle.
Given the poor timing, it makes sense that $BFRG experienced some bearish sentiment after IPOing.
That being said, it’s not uncommon for stocks to go down after the company goes public as the initial excitement of being the new kid on the block starts to fade.
Things got a lot more interesting for Bullfrog though as AI buzz starts to make its way back into the market again…
$BFRG started to get some momentum……but it wasn’t until April 4th, when they announced a partnership with John Hopkins, that the stock really started to go parabolic.
Unfortunately for them, that was also when Kerrisdale Capital decided to drop their allegations against C3 AI.
Thankfully despite the bearish sentiment, $BFRG has managed to maintain above all time lows at $2.55…..which in this case also happens to be a crucial support level.
Obviously, the stock would do well to maintain a price level above $2.55, but what about on the upside?
The positive and negative catalysts dropping in succession, leaving $BFRG with messy price action, and no strong resistance…
Having said that, there is some interesting price behavior happening around the $5.50 price point that indicates a weaker resistance level.
We can see the price action attempting to hold the $5.50 level after the short seller report dropped.
This is another example of old resistance turned into new support…..however this is a weak example at best.
In plain english, this means that while it may be a useful price level to monitor, paying greater attention to other technical or fundamental factors may be of more value.
That’s all I’ve got for today…
The week ahead is gonna be an exciting one, so make sure to keep your eyes open!
Also – don’t forget to put JFBR on your radar!
Until Next Time,
Damian
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