Best AI Stocks Heading into Earnings Season
Best AI Stocks in 2023
In the last blog post we talked about one of the top performing AI stocks of 2023, SMCI, and how its outperformed NVDA this year. We discussed how we spotted it for customers in January and the ideal technical entry points that have come up throughout 2023.
Since the last bull flag (a real bull flag or high tight flag) breakout, the most bullish chart pattern, the stock reached our 35% profit target within 3 weeks in June. The kind of move that is not uncommon out of a true bull flag or high, tight flag. It soared about 300% from our initial entry point after featuring it to customers in January in a similar pattern.
After reaching the price target in the last swing trade, the price pulled back sharply and is still below that swing trading target price.
Why Did SMCI Pull Back so Much?
One of the important rules in our strategies is to not buy just ahead of earnings in most cases. We also exit a trade ahead of earnings in most cases.
This is because an earnings report and commentary can be interpreted in multiple ways. You may know that the company will beat earnings but have no idea of what the costs will be, the margins and what the management guidance will be.
If they disappoint in one of these key areas, the stock could get clobbered as we saw with SMCI after we got out ahead of earnings. After earnings, the stock plummeted the next trading day. This is why we use swing trading strategies to to make money on stocks.
Unfortunately, a sudden, large move lower in the stock like we saw after the last earnings release is often the beginning of the end of a long-term upward move.
Trading AI Stocks After not Before Earnings
Traders often assume you have to get in ahead of earnings to see this kind of move in a stock. However, when we featured SMCI on May 2nd, earnings had just been released after hours. We had a chance to look at the earnings report in detail and knew it could make a big move if it broke a key resistance level the next day.
We notified customers that evening and SMCI broke the resistance the next morning and then soared 200% in about 2 months from there. This was after the SMCI earnings release.
Charts courtesy of StockCharts.com
Again, this move occurred after the earnings report and well before the next earnings release.
Lesson on Trading AI and Other Stocks
In a tough market where you are fighting the Fed and higher bond yields lowering stock valuations, you can put in price alerts for the best stocks at good technical entry points. If the price reaches the entry point in the consolidation pattern with a great report and/or outlook, and it breaks the premarket high, consider a long trade.
These are the best opportunities in our opinion on only the best stocks. We generally focus more on those with a rising 50 day and 200 day moving average ahead of the report. The daily alert subscription portal has a video on how to create these text alerts.
Last week was another good example of why we wait until after the report. SGH was setting up a flag pattern ahead of earnings. We said to look for a break of $25 and the pre-market high on Friday after the report before getting long.
The stock had a terrible earnings report and never broke the pre-market high on Friday so we avoided entering the trade. This is why we say to buy after earnings and not before earnings and only if it reaches a good technical entry point.
The sequence of events is critical to us when swing trading. First we want a great stock with a successful track record, a long-term uptrend already established, a strong consolidation pattern, and then we need to see the stock reach the entry point with a fresh, bullish catalyst. Not a bearish catalyst.
Good luck if you are trading anything else in this market or just jumping in ahead of earnings reports. Especially penny stocks. Even the small cap Russell 2000 index is now negative for the year and trending lower.
AI Stock List for Q3 Earnings Season
SMCI just reached the entry point in a decent consolidation pattern. However, the move down was so large after the last earnings report that the stock could be cooked. But watch for a break of $318 and the pre-market high after earnings due out November 7th. If its a great report and outlook, we will take a look at a potential swing trade.
Service Now is another AI-related stock that has acted well out of bullish chart patterns this year. We will be reading the earnings release right after it reports on October 25th. A great report and move above the price point in the daily alert service could be a solid swing trading opportunity. Of course, we will be using good swing trading risk management if we enter a trade.
One of the best risk management tactics right now is to only enter trades after the earnings report. We wait for the few that are exceptionally bullish earnings reports and outlooks on great stocks.
We have another exceptional AI stock reporting this week as it quietly consolidates in a bullish chart pattern ahead of the news. This one could offer a great entry point if the report is strong and reaches the technical entry point in the bullish pattern.
Last time we featured this stock, it reached the entry trigger and soared over the next few weeks while holding a 2% stop below the technical entry point. The best stocks and swing trades tend to hold a tight stop like this below a good technical entry point which is important to understand when swing trading.
Other AI stocks are coming up on our radar. Right after earnings is when they often are set in motion if the news is better than expected and they raise their outlook. A lot of them are reporting earnings over the next couple months.
