Why did C3.ai, Inc. (NYSE: AI) tank over 25% yesterday?
Since it’s the artificial intelligence sector leader — you might be concerned that other AI stocks are done now too…
So today, I’ll break down what happened to AI yesterday…
And I’ll share what I think it means for other artificial intelligence stocks.
They may not be done yet…
Because the reason AI was down yesterday is also the reason it hit new 52-week highs last week. And I could see the same thing happening to other stocks in this sector.
If that doesn’t make sense — read on and I’ll explain it.
I sent Bullfrog AI Holdings, Inc. (NASDAQ: BFRG) to subscribers in premarket yesterday, with an entry at $7.50 and a goal of $9+ — the stock hit a high of $9.50!
See how you can get my 15 years of experience plus a cutting-edge algorithm working for you to find stocks and trade plans like BFRG.
Why AI Tanked 25% Yesterday
The reason AI tanked yesterday was because there was a short report on the company.
But that’s not the whole story…
The short report came out in March. That’s why I said earlier that the reason it failed yesterday is the same reason it made new highs last week.
It’s because of short sellers.
But the short sellers who piled in when the report originally came out got trapped when the stock didn’t tank. Then they had to buy to cover to get out… And that’s what caused the stock to continue to climb higher.
Then even the most stubborn shorts got smoked when the stock broke out and shot up to new 52-week highs.
Yesterday the same firm that released the report in March announced it sent a letter to the company’s lawyers.
And this time the news hit the stock harder…
Shorts were already blown out of this thing last Friday. So now they were ready to get back in at a higher price.
The stock gapped down which usually indicates a first red day…
It’s a common short-selling strategy to short a stock that gaps down after multiple green days.
It’s also a sign for long traders that swing trade the stocks to take profits. So you typically see a lot of selling pressure — just like we did in AI yesterday.
So the news wasn’t new. But the massive run and eager short sellers created a perfect storm for a big red day…
AI chart: 6-month, daily candle — courtesy of StocksToTrade.com
Since AI is the sector leader, what does this mean for other AI stocks?
Where Do Artificial Intelligence Stocks Go From Here?
I said yesterday that I think this hot sector has legs — meaning I think it can run for a while.
Big companies are talking about it. Small-cap companies are pivoting into the sector.
That’s one of my favorite indicators of a hot sector. (BFRG was a perfect example yesterday.)
We could still see stocks like BigBear.ai Holdings, Inc. (NYSE: BBAI), and Guardforce AI Co., Limited (NASDAQ: GFAI) rip back and squeeze shorts.
All they need is a press release and volume.
I’ll also be looking for other small-cap stocks to pivot into artificial intelligence with press releases…
Especially the low floaters that I love.
Stay up to date on all the stocks and patterns I’m watching with my Market Update videos three times per week.
Have a great day everyone. See you back here tomorrow.
Tim Bohen
Lead Trainer, StocksToTrade