This article is a special contribution article of Prof. Grant Henning based on his published research material of the BLM technical theory. Additional publications are available to members of Value & Momentum Breakouts.
Winning Bounce/Lag Momentum Stocks For Week 2 Of 2019
I am now extremely bullish about equity market prospects going forward. This optimism is built primarily on three factors:
- We are experiencing massive job growth. The recent tally of 312 K new jobs added blew away forecasts. This kind of growth could only happen if a large amount of money is being repatriated from abroad, and if employers are sensing that future sales prospects are bright.
- The FOMC has signaled that it is unlikely to continue hiking interest rates. The earlier precipitous action by the Fed in raising rates and draining liquidity was the primary trigger for the market drop in December. Now investors can return with greater confidence.
- For the first time in many months all three major US equity indexes (SPX, INDU, and NASD) show relative strength outpacing money flow. This is a very powerful technical signal going forward.
Performance of Last Week’s Picks
This past week the S&P 500 Index turned positive on the week, gaining one percent. At the same time, last week’s BLM momentum picks WD-40 Company (WDFC), SMTC Corporation (NASDAQ:SMTX), Companhia Energetica de Minas Gerais (CIG), Ra Pharmaceuticals, Inc. (RARX), and NF Energy Saving Corp. (NASDAQ:NFEC) gained an average of 6.56%, with two of those stocks (SMTX and RARX) gaining more than 20% from Monday. Recall that the BLM index is based mainly on rate of price ascent and proximity to new highs, along with considerations of money flow and past performance. Most of those stocks merit continuing scrutiny going forward.
A Look at Next Week’s BLM Picks
For next week, the algorithm has identified five new picks Intelligent Systems Corp. (INS), Inseego Corp (INSG), Centrais Eletricas Brasileiras (EBR), SMTC Corporation (SMTX), and Ra Pharmaceuticals, Inc. (NASDAQ:RARX), two of which (SMTX and RARX) are returning picks. All of these picks exhibited a BLM score above 30. Above each chart shown below a brief rationale is provided for each new pick.
Intelligent Systems Corp. (INS) is a financial services company providing credit and debit card services internationally. Its subsidiaries (CoreCard SRL in Romania and ISC Software in India) provide software development and testing, accounts receivable, and small loan services. It was given an analyst buy rating in December by the Street, and it has held up well during the recent market downturn.
Technically it is now exhibiting a bullish MACD crossover pattern, and its Relative Strength Index (66.07) has moved above its Money Flow Index (61.22).
Inseego Corp (INSG) provides 4G and 5G mobile software solutions for the telecom industry as well as government and enterprise telecom management services. Technically, the stock has also experienced a bullish MACD crossover pattern stronger than any exhibited since August 2018. It has also held up well during the recent market downturn.
Centrais Eletricas Brasileiras (EBR) is an electric utilities company providing governmental electrical services for the hot expanding Brazilian marketplace. Since the recent presidential elections in Brazil, many parts of its economy are already experiencing optimism and are taking off. Other similar plays in that market include ELP, BSBR, and GOL that have all held up well during the recent market downturn. Brazilian construction company Odebrecht has agreed to pay EBR $42.5 million in settlement of corruption charges.
Technically, EBR is experiencing a powerful MACD crossover pattern, and its relative strength index (76.43) exceeds its money flow index (60.35), suggesting that it still has room to run.
SMTC Corporation (SMTX). As you can see in the chart below, this stock also is showing positive upward momentum—even in a challenging bear market. This Canadian-based company provides electronics manufacturing services including printing circuit board assembly for markets in the US, Mexico, and China. Technically, the stock is approaching a new 52-week high. It is experiencing a positive MACD crossover pattern, positive upward RSI and money-flow movement, and has just had a new analyst buy recommendation. Currently its BLM score is 45. Some caution is warranted in the near term by the fact that its money flow index (92.07) has now exceeded its relative strength index (75.75).
RA Pharmaceuticals (RARX) is a US biopharmaceutical company focused on the development of products for treatment of certain immune reactions such as those involved in the rejection of organ transplants, and the treatment of paroxysmal nocturnal hemoglobinuria (PNH). The stock has benefited from positive analyst recommendations and from hedge fund acquisitions of its shares. Technically, the stock is experiencing a recent positive MACD crossover, and it is approaching new share-price highs. It currently has a BLM score of 35. Although it has had a recent strong run up, the fact that its money flow index (66.45) is still below its relative strength index (67.80) suggests that it still has some room to run.
Best wishes in all of your investment decisions.
Professor Grant Henning, Ph.D. (Ret)
My last article is available at the link below, and each set of weekly stock selections are updated on the live tracking spreadsheets and V&M Dashboard available to members under the Tools section.
Disclosure: I/we have no positions in any stocks mentioned, but may initiate a long position in INS,INSG,EBR,SMTX,RARX over 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 microcap stocks. Please be aware of the risks associated with these stocks.