Artificial intelligence stocks came back yesterday to rip the faces off of short sellers…
We saw gains of 12%, 35%, and even 75%!
A mix of three ingredients caused these big moves … And this recipe and price action repeats…
So today I’ll share what triggered these moves so you can capitalize next time…
The next big move in any stock could happen as soon as today — so pay attention…
Three Reasons Why Artificial Intelligence Stocks Bounced Back
C3.ai, Inc. (NYSE: AI) is the artificial intelligence sector leader.
When it started running last week, other AI stocks like BigBear.ai Holdings, Inc. (NYSE: BBAI), SoundHound AI, Inc. (NASDAQ: SOUN), Guardforce AI Co., Limited (NASDAQ: GFAI) spiked too as sympathy plays.
And sympathy plays follow the sector leader closely.
So when AI was hit with negative news this week … The stock tanked and the other artificial intelligence stocks followed.
AI had a crazy selloff … Even I thought it would bounce sooner than it did.
AI chart: 2-day, 5-minute candle — courtesy of StocksToTrade.com
But before it could bounce— it needed something…
A Catalyst
AI announced some news on Friday…
After days of silence, the company finally released a rebuttal letter to the short report.
That caused the stock to gap up in early premarket … But by the time the market opened, it was selling off again.
The stock opened red — meaning below the previous day’s closing price — then it dipped further…
But look where the dip bottomed out on the chart…
AI chart: 2-day, 5-minute candle — courtesy of StocksToTrade.com
It held the previous day’s low, and the Oracle support level, then it bounced and went green (above the previous day’s closing price).
And it was a multi-month support level…
AI chart: 6-month, daily candle — courtesy of StocksToTrade.com
And a red-to-green move can signal a…
Momentum Shift
I look for red-to-green moves in multi-day runners because that’s often the level that short sellers use as their risk.
And as long as a stock is gapping down daily and is in a downtrend, shorts are comfortable.
But once it gaps up, or goes from red to green — that can signal a momentum shift.
It’s a sign for shorts to exit. And that’s what happened to AI yesterday…
AI chart: 1-day, 1-minute candle — courtesy of StocksToTrade.com
Once it went red to green it had a big upside move.
Sympathy play Guardforce AI Co., Limited (NASDAQ: GFAI) didn’t even go red.
It was trading just above the previous day’s closing price in premarket. Then when the market opened, it spiked straight up and halted.
GFAI chart: 1-day, 5-minute candle — courtesy of StocksToTrade.com
And once there’s a momentum shift in a stock or sector with news … That makes shorts nervous and triggers a…
Short Squeeze
Since the red to green level is an area a lot of short sellers use as their risk, once it breaks above that it can trigger a wave of buy orders.
That’s when you can see the stocks climb quickly with big green candles and no dips…
And that can trigger volatility halts like GFAI had yesterday.
That shows you how powerful these moves can be.
We look for these types of setups every day in SteadyTrade Team webinars.
But if you’re not ready for the time commitment to attend twice-daily webinars — join StocksToTrade Advisory.
Members get three Market Update videos per week, an exclusive weekly watchlist, monthly market reports, and more!
Have a great day everyone. See you back here tomorrow.
Tim Bohen
Lead Trainer, StocksToTrade