Momentum investing involves taking advantage of, and making profits from, upward trends in a stock. The strategy takes the position that the stock market’s recent winners will remain winners.
Note that there is a big difference between momentum investing and momentum trading.
While both strategies capitalise on the momentum of stock prices, they differ in their objectives, time horizon, and execution.
The primary objective of a momentum investor is to capture long-term trends in stock prices.
But momentum investing isn’t just a “hey, this stock looks like it’s doing well, I’ll throw my money at it” strategy.
“Momentum investing’s bread and butter is profiting off long term trends, making it perfect for taking advantage of secular trends,” says a note from Saxo Bank.
“A momentum investor might see a downtrend and decide to hold cash and wait for positive momentum to reassert itself.
“While this may lead to some opportunity cost, it can allow an investor to minimise larger drawdowns as there are some periods where negative momentum can last for a long time (think 2007/2008).”
On the the other hand, momentum traders aim to profit from short-term price movements in stocks, focusing on exploiting upticks or price trends within shorter time frames ranging from a few hours to a few weeks.
Their goal is to enter and exit positions rapidly to make profits from price changes.
Fortunately, for both momentum investors and momentum traders, there are several indicators that can be used to signal momentum of any given stock, and here we look at three main ones:
52-week high
Simple Moving Average
Relative Strength Index
Signal 1: 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% AMH AMCIL $1.13 0.00% 4.63% 19.58% 13.00% HZN Horizon Oil $0.18 0.00% 5.88% 2.86% 2.86% AAP Australian Agricultural $0.02 0.00% 4.55% 43.75% 53.33% SKS SKS Technologies $0.45 0.00% 21.62% 136.84% 150.00% SRV Servcorp $4.06 0.00% 9.14% 33.99% 21.19% TBR Tribune Resources $4.20 0.00% 39.07% 37.70% 11.41% MIL Millennium Services $1.14 0.00% 1.79% 100.00% 235.29% MEA Mcgrath $0.60 0.00% 19.00% 50.63% 56.58% QOR Qoria $0.33 0.00% 30.00% 44.44% 66.67%
The virtual office services company recently reported a 25% underlying profit jump in the first half (vs pcp) to $24.8m.
The restructuring of its Middle East operations continues. Servcorp has now been granted a regional headquarter licence issued by the Saudi Ministry of Investment, the first foreign corporation in the shared workspace sector to obtain this.
“Based on current multiples being achieved in the Saudi market for growth businesses, we could expect to see a significant value uplift for our shareholders, should the transaction be successfully completed,” said the company.
Qoria (ASX:QOR)
The cyber safety firm, previously known as Family Zone Cyber Safety, recently reported group total revenue of $48.7m for the half year of FY23 (versus $37m in the pcp).
Qoria’s entire business is focused on protecting and supporting the digital journey of children.
The company mainly targets the US, UK, and European markets, as well as local markets in Australia and New Zealand, with its core Education products that are generally marketed to schools.
With the introduction of Qustodio during the previous period, the QOR’s customer footprint has now expanded to over 100 countries around the world. The Qustodio product is offered in nine languages.
Signal 2: Simple Moving Average
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 $0.02 >5% Above SMA >5% Above SMA >5% Above SMA >5% Above SMA FL1 First Lithium $0.27 >5% Above SMA 1 to 5% Above SMA 1 to 5% Above SMA -1 to -5% Below SMA ACR Acrux $0.07 >5% Above SMA >5% Above SMA >5% Above SMA >5% Above SMA CKA Cokal $0.11 >5% Above SMA >5% Above SMA >5% Above SMA 0 to 1% Above SMA ALK Alkane Resources $0.65 >5% Above SMA 1 to 5% Above SMA >5% Above SMA 0 to 1% Above SMA ANX Anax Metals $0.03 >5% Above SMA >5% Above SMA >5% Above SMA < -5% Below SMA ASE Astute Metals NL $0.03 >5% Above SMA >5% Above SMA 0 to -1% Below 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 BAS Bass Oil $0.09 >5% Above SMA >5% Above SMA >5% Above SMA -1 to -5% Below SMA BOT Botanix Pharmaceuticals $0.24 >5% Above SMA >5% Above SMA >5% Above SMA >5% Above SMA
Acrux jumped almost 70% on Wednesday last week after launching its generic of Dapsone 5% Gel in the United States.
Dapsone 5% Gel is a prescription medicine used on the skin (topical) to treat acne vulgaris. It helps decrease the number and severity of acne pimples, and helps pimples that do develop to heal more quickly.
Dapsone is an antibiotic. According to data from IQVIA, annual market sales for Dapsone 5% Gel products exceed US$15 million.
Anax announced that itself and Develop Global (ASX:DVP) will commence a scoping study to investigate the feasibility of transporting oxide ores from DVP’s 100%-owned Sulphur Springs deposit to Whim Creek, where ore may be heap leached to produce saleable copper and zinc products.
The investigation will exclude ore that forms part of DVP’s Definitive Feasibility Study Reserves and Production Target announced in June 2023.
The treatment of this ore would therefore have no impact whatsoever on DVP’s current mine plan for its Sulphur Springs development but could represent a new material revenue stream to DVP and the joint venture.
Signal 3: Relative Strength Index
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 with RSI over 70:
(data from Commsec)
Code Name 2 Day RSI 9 Day RSI 14 Day RSI FGX Future Generation Strong Strong Overbought MCM MC Mining — Strong — IBC Ironbark Capital — Strong — MEI Meteoric Resources NL — Strong — RSG Resolute Mining — Strong — CCM Cadoux Strong Strong — SEN Senetas Corp Strong Strong — TBR Tribune Resources Strong Strong Strong TGP 360 Capital Group Strong Strong Strong NWC New World Resources — Strong —
Nova says USA sales for the month of February were a record of US$0.99 million (unaudited).
USA sales were 20% higher than January, and 11% higher than October 2023, the previous record USA sales month.
The strong performance was driven by the US surgeon’s take-up of iTrack Advance since its launch in May 2023. Since then, the company has continued to receive excellent feedback on the product’s performance from new and existing customers.
AIC recently reported an updated Ore Reserve estimate for its 100% owned Jericho Copper Deposit, located 4km south of the company’s Eloise Copper Mine.
The Jericho Ore Reserves have increased significantly following incorporation of results from the 2023 drilling program and updated mine designs.
The Reserves now total 3.2Mt grading 1.9% Cu and 0.4g/t Au containing 61,100 tonnes of copper and 37,000 ounces of gold, representing an 86% increase in contained copper and 86% increase in contained gold.
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