Stock of the Week (SI: Silvergate Capital) Inside Week and Up Setup

Hey everyone!

This week I am highlighting SIlvergate Capital Corp (Ticker Symbol SI) as my Stock of the Week. The setup I’ll be discussing is an Inside Week and Up which is fantastic for both swing trade and position trade setups. From the pivot, SI rose 31% and into new all-time highs.

This article will analyze SI through fundamental and technical lenses and also go in-depth into how you could have traded this name. As always, don’t focus on this particular opportunity; instead, focus on the setup and the process.

And before we get into the analysis of SI, make sure you are subscribed so you don’t miss any future articles.

Routines

Going into the week I (luckily enough) already had a full position in SI. I had built a position after it held the Earnings Gap Down Close due to the overall theme (Crypto) and the quality of the Weekly base.

SI was building the handle of a strong long-term Cup and Handle. It had shown nice accumulation up the right side of the base and formed a nice inside week just below all-time highs. I’ve found this setup to be extremely effective as a stock is pulling back into its MAs on a daily timeframe. It often lines up with the final contraction in a VCP with the pivot being last week’s high.

The Fundamentals

Silvergate is a unique company and serves as the major banking solution for crypto-currencies.

The industry group SI is in is ranked 38/197 but SI also follows the strength of the crypto markets.

The quarterly EPS and Revenue growth has been superb with triple-digit earnings growth and accelerating sales growth. Fund ownership has been steadily increasing which has likely contributed to the recent tighter ranges compared to Feb. 21. Annual EPS estimates are also strong.

The Setup

An inside week occurs when the entire range of the current week is contained within the high and low of the prior week. This by definition is a volatility contraction and can produce a strong move up or down when the market makes a decision.

The context of the inside week is critical. With SI, you had a super-strong prior uptrend, then a long-term base. Within the base, there was big volume to the upside which, along with the increasing Fund Ownership numbers, indicates accumulation. Combined with the strong fundamentals, the probability was high that SI would emerge to the upside from the inside week.

For entries, I like to go down to the 65-minute chart to identify pivots.

The setup looked primed into the next week with strong signs of accumulation, strength, and the crypto theme working.

Execution

A buy through the pivots required alerts and for SI to be on the focus list that morning. Based on prior strength SI should have been on your Leaders list.

It broke out within the first 30 minutes and worked right away, trending and building above the day’s VWAP, suggesting buyers were in control. Your initial stop could have been the day’s low which would have been a risk of 3.5% which is perfectly acceptable. Winners don’t make excuses and SI certainly didn’t.

SI broke through a cascade of pivots into all-time highs for a gain of 21.5% on the day. It also followed through on volume the next two days then consolidated on lower volume. The move through the psychological 200 level was also significant.

With this breakout into all-time highs, SI is short-term extended but likely just starting an uptrend. I’ll be managing my position and moving my stop up as SI reconfirms. I’ll also consider adding more after the first pullback within this move. A retest of the ATH pivot (~187) would not be out of character for this name but I would ideally like to see it hold and build above 200 and correct through time instead of price.

Key Takeaways:

The inside week setup is a powerful pattern and a great way to scan for setups. However, you want to remember to focus on high potential stocks with strong fundamentals with strong chart patterns, and signs of accumulation. SI’s weekly chart was primed before this breakout into ATHs and by using the 65 min timeframe, you could have identified key pivots and managed risk much less than 5% on the breakout day.

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Best of luck this week!

Richard