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.
Many previous selections are showing strong momentum continuation from prior weeks. You may see some overlap again this week as the selection model for highly volatile performance stocks is returning a number of the same stocks. This is to be expected with strong momentum stocks that are able to sustain over time. I welcome comments and messages regarding any questions or interest you may have in ETFs, monthly momentum stocks, and less volatile picks for long term investing. The application of momentum analysis has some effectiveness into different time periods, different levels of volatility, and different types of securities.
Last Week 7 detailed results were as follows:
The Research Continues
Let me offer one additional note related to technical trading from my selection methodology. Researchers Chiang, Ke, Liao and Wang (2012) examined 95 modern studies of technical trading and found that 56 studies had positive results, 20 studies were negative, and the remaining 19 studies had mixed results (p. 956). They also found that all eight of their actively traded technical portfolios outperformed the passive trading portfolios in the short term. Other studies referenced in my research support the profitability of technical trading methods as well. Likewise, I have found statistically significant differences in performance that warrant consideration of certain technical variables above basic passive investment strategies.
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 selection criteria has a strong bias toward high volatility please trade accordingly.
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 8 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. The selections of momentum stocks for this week include, AGEN, ARCO, BCOV, CCCL, IDRA, JRJC, PQ, VCEL:
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. The 4 stocks for this week are FET, SM, SNCR, STRT:
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. Good carry-overs from prior weeks and new stocks for this week include CDOR, ECT, ENLK, QIWI:
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. Results are updated daily and weekly.
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. As always I hope you capture the most beneficial of these breakout candidates and have a profitable week!
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
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.