Momentum investing has been shown to be a successful strategy over the long term.
The strategy essentially involves “buying high, but hoping to sell even higher” – which is the counter to the well known strategy of “buy low and sell high”.
Entering and exiting trades at the right time is crucial for momentum traders, and poor timing can lead to missed opportunities or losses.
The goal for momentum traders is to enter into trades at key points in the trend in order to maximise profits.
One of the best well known momentum traders is the American investor, Richard Driehaus – the former chairman of Driehaus Capital before his death in 2021.
Driehaus, often called the Father of Momentum Investing, is known for his focus on growth stocks and his use of momentum investing.
Driehaus has asserted that instead of looking for undervalued stocks, an investor should instead focus on buying high and selling even higher.
The Driehaus Strategy, as it’s known in the market, involves identifying and buying stocks in a strong upward price move.
The key point of the Driehaus strategy is to stay with the stocks if their upward price movement continues, i.e. don’t sell, in order to seek that “home run”.
For traders who are keen on applying his principles, there are several indicators to quantify whether a stock is trading on a momentum, and here we look at three main signals used by the market:
52-week high
Simple Moving Average
Relative Strength Index
10 ASX small caps nearest or at 52-week highs
Traders often view the 52-week highs as entry signals.
This is due what’s called the “52-week high effect” – where if a price has broken out above its 52-week range, there must be some factor that generated enough momentum to further continue the price movement in the same direction.
On the other hand, if a stock is far away from its 52-week high, chartists believe the momentum will continue going that way.
10 ASX small caps at 52-week high
(data from Commsec)
Code Name Price How far from 52-Week High? 1 mth return 6 mth return 12 mth return EVE Eve Health Group $0.001 0.00% 0.00% 0.00% 0.00% RIM Rimfire Pacific Mining $0.032 0.00% 68.42% 255.56% 300.00% BLY Boart Longyear $2.970 0.00% 5.32% 96.69% 55.50% GNX Genex Power $0.185 0.00% 5.71% 42.31% 19.35% BHD Benjamin Hornigold $0.260 0.00% 1.96% — 18.18% MIL Millennium Services $1.115 0.45% 2.29% 271.67% 189.61% IPX Iperionx $2.230 0.45% 48.67% 106.48% 141.08% WGB Wam Global $2.100 0.47% 6.06% 7.14% 14.44% NAM Namoi Cotton $0.493 0.51% 1.55% 14.53% 9.44% VLS Vita Life Sciences $1.960 0.51% 3.70% 32.43% 28.95%
The mining services and engineering company has been rising after upgrading its half year NPAT guidance by around 18%.
Austin’s H1 FY24 underlying NPAT is now expected to come in between $12-$14 million (versus original guidance of $10-$12 million).
H1 FY24 revenue is expected to come in between $138-$144 million (versus original guidance of $120-140 million).
Austin says the upgraded guidance has been driven by increasing revenue and a sustainable improvement in operational effectiveness across the group.
PharmAust has successfully completed a pre-IND meeting with the US Food and Drug Administration (FDA).
A path has now been outlined to potentially receive an accelerated and full approval of its lead drug monepantel, for the treatment of motor neurone disease/amyotrophic lateral sclerosis (MND/ALS).
PharmAust will initiate requirements requested by FDA in preparation to open an IND application for its adaptive Phase 2/3 clinical study.
Separately, PharmAust has engaged globally renowned experts in MND/ALS and formed a scientific advisory board (SAB).
The SAB will provide expert advice for the development of monepantel to treat MND/ALS. The SAB will also support the planning stages for PharmAust’s adaptive Phase 2/3 clinical study.
10 ASX small caps with prices above SMA
Simple Moving Averages (or SMA) is another indicator that can be used to gauge momentum.
SMA is often used to determine whether a stock price will continue in the same direction, or if it will reverse a bull or bear trend.
As a general rule, if the current stock price is above the SMA, the price trend is up. If the price is below the SMA, the trend is down.
10 ASX small caps at prices above SMA
(data from Commsec)
Code Name Last Price Value Price vs. Simple Moving Average Price vs. 20 day SMA Price vs. 50 day SMA Price vs. 200 day SMA BTR Brightstar Resources $0.01 >5% Above SMA >5% Above SMA 0 to 1% Above SMA 1 to 5% Above SMA FL1 First Lithium $0.29 >5% Above SMA 1 to 5% Above SMA < -5% Below SMA 1 to 5% Above SMA BP8 BPH Global $0.00 >5% Above SMA 0 to -1% Below SMA 0 to 1% Above SMA — ARU Arafura Rare Earths $0.14 >5% Above SMA 1 to 5% Above SMA < -5% Below SMA < -5% Below SMA ATP Atlas Pearls $0.21 >5% Above SMA >5% Above SMA >5% Above SMA >5% Above SMA AUZ Australian Mines $0.01 >5% Above SMA >5% Above SMA >5% Above SMA < -5% Below SMA MRD Mount Ridley Mines $0.00 >5% Above SMA 1 to 5% Above SMA 1 to 5% Above SMA < -5% Below SMA GSR Greenstone Resources $0.01 >5% Above SMA 1 to 5% Above SMA 1 to 5% Above SMA < -5% Below SMA BLZ Blaze Minerals $0.01 >5% Above SMA 0 to 1% Above SMA < -5% Below SMA < -5% Below SMA M4M Macro Metals $0.00 >5% Above SMA 1 to 5% Above SMA -1 to -5% Below SMA < -5% Below SMA
Shallow infill drilling at Kaiser in central NSW has been completed recently, showing higher grades from surface as well as strong continuity of mineralisation at depth.
Both the near surface grades and continuity at depth are encouraging as the company looks to update the Kaiser mineral resource estimate.
Alkane expects to have the final results available in March, and the updated resource completed in March/April.
The updated Kaiser resource estimate and the recently released Boda resource update will then be combined in a scoping study to demonstrate the size and scale of these deposits, as well as their potential economic value.
ADY has enhanced the value of its Mariposa Fe Project, after recently announcing a Maiden Ore Reserves estimate for its flagship Chilean project.
The Ore Reserves estimate comprises 36.3 million tonnes (Mt) at a cut-off grade of 15% TFe (total iron).
Total Fe concentrate is approximately 14 Mt with a grade of 65% TFe, equivalent to a total weight recovery of 38%.
A total of 83.7% of Ore Reserves are probable and 16.3% are proved, according to a JORC 2012 estimate by Chilean firm Geoinvest SAC E.I.R.L.
10 ASX small caps with low RSI (Oversold)
Here’s another momentum signal used by the market – the Relative Strength Index (RSI).
RSI is a measure of the strength of a stock’s momentum, either in the upward or the downward direction, and is used to indicate whether a stock is oversold or undersold.
Generally speaking, an RSI above 70 means a stock is overbought; and an RSI below 30 indicates that it’s oversold.
An RSI above 80 meanwhile is strongly overbought, and an RSI below 20 is strongly oversold.
10 ASX small caps at prices with RSI Oversold signal
(data from Commsec)
Code Name 2 Day RSI 9 Day RSI 14 Day RSI WNR Wingara Ag Oversold Oversold — CMP Compumedics — Oversold — GRV Greenvale Energy Oversold Oversold — UNT Unith Oversold Oversold — ST1 Spirit Technology Oversold Oversold — UBI Universal Biosensors Oversold Oversold — GDA Good Drinks Australia Oversold Oversold — ZMM Zimi — Oversold — LCL LCL Resources — Oversold Oversold SLR Silver Lake Resources — Oversold —
HGO announced its first copper production from the Kanmantoo underground operation, and the transition to cashflow generation.
Over the next few months, the mine output and copper production are expected to ramp up as the planned additional work areas are established underground.
Operations will be bedded down at Kanmantoo as HGO ramps up to steady stage production.
The company says its attention will now turn to growing the business by converting future exploration and development opportunities.
Mount Burgess Mining (ASX:MTB)
MTB has recently issued unlisted options of its shares to Bowden Capital in order to fund the development of the Kihabe – a Nxuu Zn/Pb/Cu/Ag/V2O5/Ga/Ge project situated on the border with Namibia in Western Ngamiland.
The project covers an area of 1,000sqkm. The project area covers the whole portion of a neo-proterozoic belt, situated on the Botswana side of the border, highly prospective for base metals (Zn/Pb/Cu), battery metals (V2O5), precious metals (Ag) and strategic metals (Ge/Ge).
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