Week 3 Breakout Forecast: Short-Term Picks To Give You An Edge

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Includes: ASC, BIIB, CMRE, CWEI, DNR, KEM, LGCY, MITK, OREX, PSA, RVLT, SDLP, SGMO, SXE, TNXP, TOO, TTPH, UTI, WINA
by: JD Henning

Summary

8 new breakout stocks for Week 3 with better than 10% short-term upside.

4 new breakdown stocks for Week 3 with substantial downside potential.

2 new high div yield (>5%) stocks for Week 3 with strong upward momentum.

For 2017, I have begun publishing a small sample of weekly breakout stock picks based on algorithms from my Ph.D. dissertation that identifies price momentum anomalies and reversals. These selections include both high positive momentum breakouts as well as negative momentum stocks, based on the strongest documented characteristics of short-term momentum price behaviors.

The purpose of these articles will be to continue to document out of sample testing as analyzed from January 2016 in my publication, and to share potentially beneficial opportunities with other investors. I have not decided on the duration of this weekly public sampling, but hope you will find it economically beneficial and trust you will do your own due diligence as well. Please keep in mind that some of the most positive/negative momentum stocks that emerge from these algorithms often include very small capitalized stocks and relatively small trading volumes.

The algorithms I constructed discriminate across seven classifications of the momentum cycle, but for purposes of investor interest I will concentrate on the two most potentially profitable components: positive acceleration and negative acceleration. In addition, a sample of high dividend yield stocks with strong upward momentum is included to assist more dividend-focused investors. The performance results for each week will be documented in the comments for each article.

Top selections for Week 3 are as follows:

Positive Acceleration Momentum Stocks

These stocks have strong characteristics of positive momentum into acceleration for short-term gains. The typical momentum duration horizon from this analysis is one to three weeks. Based on past analysis it is not uncommon for stocks to sustain the momentum criteria for longer periods. Good carry-overs from last week include SXE, RVLT and TNXP. The stocks for this week are DNR, KEM, LGCY, MITK, OREX, SGMO, TTPH, UTI:

Negative Acceleration Momentum Stocks

These stocks have strong characteristics of momentum decline into acceleration for shorting opportunities. The typical momentum duration horizon from this analysis is one to three weeks. Based on past analysis it is not uncommon for stocks to sustain the momentum criteria for longer periods. REX remains a good carry-over from last week. The 4 stocks for this week are BIIB, CWEI, PSA and WINA:

Positive High Dividend Momentum Stocks

These stocks have dividend yields greater than 5% as well as strong price momentum in the short term. The typical momentum duration horizon from this analysis is one to three weeks. Based on past analysis it is not uncommon for stocks to sustain the momentum criteria for longer periods. This may be especially true for dividend stocks that tend to have less volatility than pure growth stocks. Carry-over from last week includes SDLP and TOO. New high dividend momentum stocks for Week 3 are ASC and CMRE:

This approach outperformed in 2016 and I am hopeful it will continue to be a reliable indicator of momentum conditions across the momentum cycle throughout 2017. Your comments on this ongoing study are appreciated. My personal preference is to invest in long positions and not to identify companies for shorting. However, in the interest of documenting both positive/negative momentum breakouts using my algorithms, a small sample of negative accelerators is included.

Disclosure: I am/we are long DNR, RVLT, SDLP, SXE.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Editor's Note: This article covers one or more stocks trading at less than $1 per share and/or with less than a $100 million market cap. Please be aware of the risks associated with these stocks.