Friday LIVE & A Couple Charts

Hey there. Today is a rough day for the good guys, but nothing has changed as far as our picks or methodology. Here’s the quick rundown:

1. I went LIVE today, so you can get all the details on YouTube: https://youtu.be/XJSXd01f_p4

2. Smith Micro (SMSI) missed their expectations, but provided positive commentary about the progress of their implementation at T-Mobile, saying they are “weeks” away from a public launch. Of course, retail investors tend to focus on immediate gratification vs. the future (the opposite of what professional investors do), so the stock is down heavily today.

Following the rules I teach, I bought additional shares today. For an outsider’s view, here’s the latest assessment from Seeking Alpha https://seekingalpha.com/article/4495021-smith-micro-sells-off-but-the-prospects-remain

FYI, I’m not big into charts, but the chart below shows how SMSI has been in an uptrend since 2017, reversing the downtrend of 2011-2017. As you can see from the pattern, the stock has many bounces on the way down, along with many pullbacks on the way up.

Notice the bounce from 3 to 7 in 2014. It’s mirror image of the 7 to 3 move we’ve just experienced. If the mirror pattern (many would call it an “inverse head and shoulders” pattern — see appendix below for more on this) continues, the next big move should to be to 11. The key word is “big”. The stock can anywhere (up or down) in the coming weeks/months, but I believe that 11 is just the beginning for where this stock is going, based on what the company just confirmed for us last night.

One thing I will say about the pattern above… it does mimic a typical BUSINESS cycle for SMSI. When one part of their business is winding down, it’s a slow process, with many bounces on the way down. Similarly, when a new opportunity for them is developing, it’s a slow process, with many bumps on the way up.

Thankfully, last night’s call provided confirmation that the latest opportunity is finally ready to bear fruit.

Speaking of mirror / inverse head and shoulders patterns, IRIX has also been exhibiting a mirror pattern over the past few years. Notice how 2018 unfolded, leading to the sharp move down in 2019, bottoming in 2020, and rebounding in early 2021. That move has culminated in a mirror-image move over the past 18 months, which should (if the BUSINESS does well) in a move up that mirrors 2017’s decline.

Of course, I believe the business will do well. It’s just a matter of time and execution.

In the meantime, stay true to the lessons.

Many of my picks (and biggest winners) have been the result of buying a company going through a painful transition. Most people can’t handle the patience required. That’s EXACTLY why this method of investing is so profitable. As my mentor taught me, “we get paid to wait”… and for the past 25+ years, the pay has been nothing short of amazing.

So stick with it.

We’ve done a good job of offsetting some of our losses with gain on hedges and shorts. We’re still losing, but far less than the average investor (who is down more than 20% since November).

Losing less than the rest is still called outperformance… and outperformance has always been the key to long-term success.

Cheers

Appendix: What is Inverse Head And Shoulders?

An inverse head and shoulders, also called a “head and shoulders bottom”, is similar to the standard head and shoulders pattern, but inverted: with the head and shoulders top used to predict reversals in downtrends. This pattern is identified when the price action of a security meets the following characteristics: the price falls to a trough and then rises; the price falls below the former trough and then rises again; finally, the price falls again but not as far as the second trough. Once the final trough is made, the price heads upward, toward the resistance found near the top of the previous troughs.

For more, visit https://www.investopedia.com/terms/i/inverseheadandshoulders.asp

Image by Sabrina Jiang © Investopedia 2020

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