Trading mentor shares what gives investors ‘much better edge’ in AI stocks

Key Concepts

• AI Memory Stocks: Companies involved in the production of memory chips crucial for Artificial Intelligence applications (Micron, SanDisk, Western Digital).
• Quantum Computing: Utilizing quantum-mechanical phenomena for computation (Ion Q, Nebus, Iron, QBTS, D-Wave).
• Short Squeeze: A rapid increase in a stock’s price due to covering of short positions (Lemonade, Carvana, Reddit - RDDT, PL - Planet Labs, RCAT).
• Technical Analysis: Evaluating investments based on past market data, primarily price and volume (Weekly chart patterns, consolidation buys).
• EPS (Earnings Per Share): A company’s profit allocated to each outstanding share of common stock.
• Short Float: The percentage of a company’s shares that have been sold short.
• Consolidation: A period where a stock’s price trades within a narrow range.

Market Outlook & AI Memory Stocks

Danielle Sheay expresses a bullish outlook on the overall market, anticipating a breakout ahead of earnings season, but emphasizes a “stock picker’s market.” Regarding the recent surge in AI memory stocks, driven by Nvidia CEO’s statement about a severe memory bottleneck, she advises against immediate purchases. She believes stocks like Micron, SanDisk, and Western Digital are currently overextended after substantial gains. She suggests waiting for a 10-20% pullback to secure a more advantageous entry point, drawing a parallel to the previous year’s run-up in quantum computing names where late entrants faced unfavorable conditions. She explicitly states, “If you’re already in these names, it’s looking good for you, right? But I would not advise anyone to buy them now because they’re so extended.”

Stocks for Re-Entry & Quantum Computing Opportunities

Sheay identifies several stocks that have experienced pullbacks but still possess growth potential, focusing on companies with increasing EPS estimates. Her recommendations include Ion Q, Nebus, Iron, and QBTS – all within the quantum computing sector. She highlights that these names fit her criteria of having pulled back 10-20% while still having significant upside. She notes the similarity to the quantum computing sector’s performance last year, advising patience and a pullback strategy.

Short Squeeze Potential

The discussion shifts to potential short squeeze candidates. Sheay identifies Lemonade (LMND) as a promising option, citing its pullback, consolidation near previous highs, high short float, and upcoming earnings report as potential catalysts. Other names on her radar include Carvana (CVNA), PL (Planet Labs), and RCAT, but she particularly favors Reddit (RDDT) due to its current breakout and proximity to previous highs. She explains that a high short float combined with a positive catalyst (like earnings) can trigger a short squeeze.

Technical Bullish Setups

Focusing on technical analysis, Sheay outlines a strategy of identifying stocks exhibiting favorable weekly chart patterns, pullbacks, and consolidation. Palantir (PLTR), Cloudflare (NET), Affirm (AFRM), and Snowflake (SNOW) are highlighted as examples. She reiterates her preference for buying on pullbacks, stating, “I don’t ever want to buy stocks when they’re really hot and they’re at their highs. I like to buy them when they’ve pulled back and they’re consolidating.” Snowflake’s ticker is identified as SNOW, with a mention of a slight dip occurring during the interview.

Existing Portfolio & Adding to Positions

Sheay confirms that her previous on-air picks – Charles Schwab (SCHW), Alphabet (GOOGL), Amazon (AMZN), and Symbiotic (SYM) – are performing well. She recently added to her position in Symbiotic, believing it still has substantial growth potential. However, she would prefer to wait for a pullback before adding to Alphabet, as it is currently at new highs. She provides guidance on pullback percentages, suggesting 5% for more aggressive traders and 10-20% for longer-term investors, acknowledging that significant pullbacks may not always materialize. She states, “When I’m trading, I only need about a 5% pullback because I’m a little bit more aggressive when it comes to the trading side.”

Volatility & Entry Points

The conversation acknowledges the anticipated volatility in January. Sheay emphasizes the importance of identifying appropriate entry points based on individual risk tolerance and investment style. She stresses that the ideal pullback percentage depends on whether one is a short-term trader or a long-term investor.

Conclusion

Danielle Sheay presents a nuanced market outlook, advocating for a selective approach focused on individual stock picking. She emphasizes the importance of patience, waiting for pullbacks to secure favorable entry points, and leveraging both fundamental (EPS growth) and technical analysis (chart patterns, short float) to identify potential investment opportunities. Her recommendations span AI memory, quantum computing, and potential short squeeze candidates, offering a diverse range of options for investors with varying risk appetites. The core takeaway is a disciplined approach to investing, prioritizing value and timing over chasing momentum.