3 of the Hottest Stocks In the Market – Are They Too Hot?

Eleven stocks in my quantitative analysis system have Technical Scores of 91.2… the highest current rating.

They have nearly doubled on average since the beginning of November, when this latest rally was just getting under way. And they’re up 73% on average in just the first eight weeks of 2024.

The three biggest gainers of the group have more than tripled on average in less than four months.

You can guess at least one of the three… and maybe two.

Nvidia (NVDA) has nearly doubled in less than four months, thanks in part to this week’s surge after earnings.

Super Micro Computer (SMCI) and a much smaller company, Alpine Immune Sciences (ALPN) have shot up more than 200%.

Those are years of gains in just a few months.

Are these stocks too hot? Or should you jump in for more?

Relying on the Data

You would be surprised how often new highs lead to more new highs… many times over. Just when a stock seems like it can’t go any higher, it usually goes higher.

At the same time, no stock is unstoppable.

That’s why I don’t try to pick tops – or bottoms. And it’s why I do rely on data instead of gut feeling.

The data comes through my Quantum Edge system, which analyzes more than 6,000 stocks daily based on nearly three dozen factors and thousands of data points per stock. Those factors tell us about a stock’s fundamentals, technicals, and Big Money inflows, helping us identify the best investments with the highest odds of making money.

Historically, I have observed roughly seven out of every 10 trades generating profits, based on my own use of the system and back testing more than 30 years of data. That high winning percentage may dip some in volatile markets, but it gets even better in strong markets.

Like right now. All 17 stocks in the TradeSmith Investment Report portfolio are up since I recommended them. The average gain is 27.3%.

Fundamentals tell us about a company’s business. We want only the strongest businesses that are executing well and increasing how much they sell and earn.

Technicals tell us a company’s shares, their price movements, and how they trade. They include Big Money inflows, which are essential to big profits.

To be clear, I’m not a technical analyst or a chartist. You usually won’t hear me talking about bull flags, cup handles, head-and-shoulders patterns, Fibonaccis, Elliot Waves, and other descriptive formations. I focus on the mechanics of a stock’s trading. 

My algorithms analyze multiple data points relating to technicals. And while I can’t share all of that information publicly, I can tell you two of the most important.

One is price action over a specified time.

The other is good old-fashioned volume, or the number of shares being traded. On Thursday, after Nvidia’s earnings were released, more than 85 million shares changed hands. Which was nearly double average daily volume. And shares of Super Micro Computer, which shot up 33% that same day, traded more than triple average volume.

Stocks trading to new highs on bigger-than-average volume demonstrate what we call “buying pressure.” That’s when demand for shares is greater than supply … and that means shares are headed even higher. 

Unless they get too hot, which brings us back to Nvidia, Super Micro Computer, and Alpine Immune Sciences.

My Take on the Big Gainers

While 100 is the best Technical Score a stock can get in my system, it’s not what I want to see.

It’s like reaching the peak of a mountain. The only place to go is down.

A perfect score of 100 means a stock is overbought, buying is through the roof and can’t last, and a pullback is imminent.

I almost never see a Technical Score of 100, but I frequently see scores of 90 or above… as I do now with 11 stocks. That also indicates a stock is overheated, and that some sort of pullback is likely in the near future.

I hesitate buying stocks with Technical Scores above 90. I’ll simply wait for it to cool off a little bit before buying at a lower price, which both increases profit potential and reduces risk.

I already own Nvidia in personal accounts, but I would think twice about buying here with the Technical Score so high. But the long-term outlook remains excellent with its strong Fundamental Score of 79.2 and its overall Quantum Score of 86.2.

Source: TradeSmith Finance and MAPsignals.com

I recommended SMCI in my Quantum Edge Pro service, and its Fundamental Score is even higher at 83.4. We’ve banked big profits on some of our shares recently, and are now waiting for the right chance to start buying again.

ALPN is the weakest fundamentally with a score of 58.3. Alpine is an early-stage biotechnology company that is not yet profitable and has no approved products on the market. That’s not to say it won’t be successful, but at this point, it’s more of a “buy and hope” investment – hope that its potential therapies work out, and hope that the company doesn’t flame out as clinical-stage companies often do.

I wouldn’t buy ALPN right now. And if you’re interested in NVDA or SMCI, the odds of a pullback are high, which means a better buying opportunity could easily be right around the corner.

That’s what analyzing a company’s technicals can help us determine.

Talk soon,

Jason Bodner
Editor, Jason Bodner’s Power Trends

P.S. A hot Technical Score does not mean a sell if it’s a strong stock.

I recommend three of the 11 hot stocks in TradeSmith Investment Report, and we’re not selling any of them.

They all have strong fundamentals to go with Big Money inflows, and they all operate in an equally hot industry – semiconductors.

Click here to learn how you can access our complete portfolio and put the power of quantitative analysis to work for you.