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Eerie parallel between SMCI stock rise and GameStop’s crash you need to know

Eerie parallel between SMCI stock rise and GameStop's crash you need to know
Elmaz Sabovic

The semiconductor industry is currently carrying the stock market, with some companies recording strong performances. Super Micro Computer (NASDAQ: SMCI) is the strongest of them all, as it breached the $1,000 valuation per stock and recorded a daily RSI above 97, its highest ever.

It seems that the sky’s the limit for this stock, but there appears to be an ominous sign among all these gains.

Specifically, the sole additional stock to have achieved a daily RSI exceeding 97 was GameStop (NYSE: GME) on January 27, 2021, just before the peak of the “meme stock” surge.

SMCI RSI chart. Source: The Kobeissi Letter
SMCI RSI chart. Source: The Kobeissi Letter

Moreover, the surge into uncharted territory persists even after trading hours, with the stock reaching $1,032. If SMCI rises significantly above $1,000 per share tomorrow, it may result in the first-ever daily RSI surpassing 99.

Another record was broken, which might break the stock

February 15 marked a historic milestone with the highest volume of traded options of SMCI, predominantly call options. Despite this, open interest still leans towards puts, with a put-to-call ratio of 1.2.

Call and put open interest for SMCI. Source: Jared
Call and put open interest for SMCI. Source: Jared

The volatility structure observed in SMCI resembles the circumstances witnessed during the 2021 GME frenzy period. Dealers find themselves subjected to daily squeezes as the on-call options reach 100 and expiration nears rapidly. 

This scenario mirrors the trajectory of GME, wherein options became prohibitively expensive owing to supply and demand imbalances resulting from price-insensitive participants.

While observing one-year Implied Volatility, the options market suggests an anticipated daily movement of 5.1% for SMCI over the next year. In contrast, Nvidia (NASDAQ: NVDA) exhibits a comparatively more modest figure of 2.8%, even factoring in earnings volatility.

SMCI and NVDA implied volatility. Source: Jared
SMCI and NVDA implied volatility. Source: Jared

Considering surging RSI, supply and demand imbalances, unreliable expected gains, and spiking price charts, traders should ask themselves whether this AI boom can support these gains.

Predicting whether this stock will continue its upward trend or face a sharp decline is challenging. However, historical data suggests that technical indicators typically identify anomalies and prompt corrections, albeit sometimes delayed.

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