As any experienced small-cap investor knows, certain stocks can get hot (and cold).

Often, the buying and selling is based on information which directly affects the underlying fundamentals of a given company; earnings updates or new contracts won.

But an important part of any investors’ toolkit is to at least have an understanding of technical indicators, as well as fundamentals.

One such metric is the Relative Strength Index (RSI); a momentum gauge which indicates whether a stock has been overbought or oversold.

What it does

The RSI calculation is derived from two key aspects of the price action for a given company; the number of days a stock closes higher (or lower) from the previous session, and the size of those daily moves.

It helps provide a distinction between stock trading based on fair value and stock trading based on momentum.

While positive market updates usually drive a company’s early gains, too many daily increases in a row and the RSI will provide a warning that the market is getting ahead of itself.

Conversely, too many consecutive declines may cause a company to be undervalued, so investors also keep an eye what’s been oversold to spot potential buying opportunities.

The standard period of time on which RSI calculations are based is 14 days. The results are displayed via an oscillating graph on a scale from 0 (oversold) to 100 (overbought).

And as a generally accepted rule, a reading of 70 is seen as the level at which a company’s been overbought. If a stock has a reading of 30 or below, it may be undervalued.

Running hot

So with that explainer in mind, which stocks were running hot over the past couple of weeks?

Stockhead has compiled a list of those that have oscillated towards the higher end of the spectrum. And to dial up the heat gauge a little, we filtered the group to companies with a reading of 80 or above.

Topping the list was Chase Mining (ASX: CML), which was the only company on the ASX to register an RSI above 90.

A 17.65 per cent gain on Friday May 10 prompted a speeding ticket from the ASX, but CML was “not aware of any information” which could explain the rise.

The company then posted two consecutive gains of 35 per cent last week, before announcing the results of geophysical processing which revealed “massive sulphide conductors” at its Lorraine Project in Quebec, Canada. The price then cooled off with a 14 per cent fall to close on Friday at 3.6 cents.

Here’s a summary of the stocks that were running hot for the two weeks ended Friday, May 17:

Running cold

On the other end of the spectrum are stocks that look unloved, from a technical standpoint.

While the initial selling may be have caused by some bad news, the technical RSI indicates the market has overshot it and they may be due for a rebound.

In this case at least, the company with the lowest RSI over the past two weeks was Actinogen (ASX:ACW), with a reading of 14.

However, on May 7 the company released some news which negatively altered its whole outlook. Its Xanamem Alzheimer’s treatment, which was years (and many millions of investor dollars) in the making, turned out to be ineffective.

ACW shares immediately slumped by more than 70 per cent; price action that will leave you at the bottom end of the RSI curve (and in this case, probably with good reason).

Here are the stocks that were running cold for the two weeks ended Friday, May 17: