SoundHound AI Inc. (NASDAQ: SOUN) ran past its $10 resistance level to deliver a new high of $14.25 on December 5, 2024. The stock, which started the week trading in the $9s, posted a 40% gain as bullish momentum from its strong Q3 earnings and a NVIDIA (NASDAQ: NVDA) stake in the stock continued to drive interest.
This week’s breakout marks a return to prominence for SOUN, one of the first AI penny stocks to break out after ChatGPT’s debut in 2023. Back then, SOUN spiked from $1 to $4.50. Today, with shares trading above $14, the stock is proving that it still has what it takes to deliver big gains for traders who know how to play the patterns.
What’s Driving the Surge?
SoundHound has leveraged its voice AI technology to secure long-term contracts with major auto manufacturers and restaurant chains. These partnerships are expanding, contributing to the company’s accelerating revenue growth. With applications in vehicles and consumer services, SoundHound is carving out a lucrative niche in the AI sector.
Traders are also drawn to SoundHound’s improving operating margins and cash flow. While the company is still operating at a loss, management’s focus on streamlining acquisitions and cutting inefficiencies is yielding tangible results. This has bolstered investor confidence, particularly in a market where AI stocks with promising fundamentals are commanding higher valuations.
Jack Kellogg’s Insight: A Sharp Eye on Resistance
Top trader Jack Kellogg, known for turning $10,000 into over $13 million through disciplined swing and breakout trading, identified SOUN’s $10 resistance level earlier this week as a pivotal price point. “Hard to believe the stock is all the way up in the nines,” he wrote on December 2. “I’m leaning more toward a short on the stock, but a long breakout trade to $15 is not out of the question.”
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Kellogg’s analysis highlights why SOUN’s move was so significant. Breaking through $10 not only validated its bullish trajectory but also brought the $15 level into play. Jack’s ability to read momentum shifts and plan for either scenario reflects the kind of preparation and discipline that has made him one of the most successful traders in the game.
The Risks of Short Selling in Today’s Market
While SOUN’s breakout is good news for long traders, it serves as a cautionary tale for overly aggressive short sellers. Many shorts piled into SOUN near $10, betting on a reversal, only to be caught off guard by the stock’s surge. As I’ve often said, short selling can be dangerous, especially on low-float runners or during a strong bull market like this.
Now short seller favorite $SOUN is squeezing big, are you guys seeing the trend yet? Short sellers talk sooooo much smack in their toxic groupthink chatrooms, but in this INSANE market, they get squeeeeeezed big time…not that they dare show their giant losses transparently LOL pic.twitter.com/SPZQyDvOEe
— Timothy Sykes (@timothysykes) December 5, 2024
Short sellers need to respect the risks: on a $10 stock, a move to $20 could result in losses that far exceed your initial position size. The key is to avoid shorting the first green day on a stock showing strong momentum. Instead, wait for clear signs of weakness, like the first red day after a multi-day run. For traders focused on the long side, SOUN’s breakout demonstrates the opportunities that arise when short squeezes push prices higher.
Trading Strategy for SOUN
SOUN’s recent move above $10 creates a new range for traders to watch. Support now sits around $12, while resistance lies at $15. For long trades, look for entries near support and target partial exits as the stock approaches resistance. Tight stop-loss orders are crucial, as volatility remains high.
This stock’s past performance shows its potential to deliver sharp, tradeable moves, but discipline is key. Whether you’re trading breakouts like Jack Kellogg or dip-buying bounces off support, stick to your plan and avoid emotional decisions.
SoundHound’s run is a reminder of the power of momentum in the stock market. With the right preparation and execution, traders can capitalize on these opportunities without falling victim to the hype.
The Bottom Line
SoundHound’s breakout past $10 demonstrates the power of combining strong financial performance with the momentum of a hot sector like AI. With its improving profit margins, growing revenue, and expanding partnerships, SOUN has established itself as a top contender among AI penny stocks. For traders, this stock represents an excellent opportunity to capitalize on short-term moves driven by both fundamentals and speculative enthusiasm.
But you don’t want to trade AI penny stocks like SOUN without a plan. That’s why preparation is key.
What’s your take on this breakout? Will SOUN continue its momentum, or is the AI bubble inflating too quickly? Let me know in the comments!
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