This article is a special contribution article of Prof. Grant Henning based on his published research material of the BLM technical theory. The model and comments are expressly based on his own proprietary methodology and forecasts.
Winning Bounce/Lag Momentum Stocks for Week 4 of 2019
The Bounce/Lag Momentum algorithm continues to be an effective stock-picking guide. Bear in mind, however, that there is much more to successful trading than merely picking good stocks. Decisions about entry and exit points and how long to hold a position are equally important. In today’s volatile marketplace, “buy-and-hold” strategies are unlikely to be successful. Therefore, although I am offering weekly stock picks, this should not be interpreted as a recommendation necessarily to hold stocks for an entire week. Last week’s performance is instructive in this matter.
Performance of Last Week’s Picks
Last week’s four viable stock picks gained an overall average of 3.40% on the week. However, as the table below illustrates, this positive performance was possible only by using 2% trailing stop-loss orders. One of last week's picks, NSU, was fully acquired on 1/11, so it was unchanged in price and did not enter the gain (loss) calculations.
|Stock Symbol||Weekly Gain (Loss)||Weekly Gain (Loss) with 2% Stop-Loss|
|Nevsun Resources Ltd. (NSU)||0%||0%|
|Rent-A-Center, Inc. (RCII)||(0.87%)||(0.87%)|
|Companhia Paranaense de Energia - COPEL (ELP)||(1.23%)||2.16%|
|Inseego Corp. (INSG)||(6.29%)||3.42%|
|Liquidity Services, Inc. (LQDT)||6.76%||8.89%|
It is recommended that similar stop-loss orders be in place for next week’s BLM picks as well. Obviously, the stop-loss orders could simply take the form of a decision to sell if the share price falls accordingly rather than using a formal stop-loss order.
A Look at Next Week’s BLM Picks
For next week, the BLM algorithm has identified the following five new picks along with their respective BLM scores: Twilio Inc. (TWLO) 97, Intelligent Systems Corp. (INS) 82, Glu Mobile Inc. (GLUU) 66, Veracyte, Inc. (VCYT) 64, and Alteryx, Inc. (AYX) 64. Note that a BLM score above 30 is required to qualify as a weekly pick. Note also that the BLM scores for this week’s picks are higher on average than the BLM scores of last week’s picks. Charts of all of these picks are available with commentary below.
You can see from the following charts that all of these stocks are experiencing upward momentum surges and are reaching new annual price highs. However, because money flow indices (MFI) exceed relative strength indices (RSI) in each case, extreme caution is warranted. Moreover, GLUU appears to have initiated a downward MACD histogram pattern that is less than encouraging. This suggests that it is all the more important to employ 2% trailing stop-loss orders for these stocks.
Twilio Inc. offers Cloud Communications Platform, which enables developers to build, scale, and operate real-time communications within software applications. It enables developers to embed voice, messaging, video, and authentication capabilities within their applications. It interconnects with communication networks around the world. The share price has gained 310% over the past 52 weeks, and a MarketEdge analyst issued a bullish “Long, Improving” rating on January 11, 2019.
Technically, TWLO now has a bullish high BLM score of 97, and, although its MFI value of 74.06 currently exceeds its RSI value of 66.67, neither score is excessively high. Thus, there may still be room to run. The stock also experienced a bullish MACD crossover pattern in the first week of January 2019.
Intelligent Systems Corp. provides technology solutions and processing services to the financial technology and services market. The company maintains a CoreCard subsidiary in Romania and an ISC Software subsidiary in India, providing financial software solutions and management of credit and debit cards. It has recently shown a 34.8% quarter-over-quarter earnings gain and has had a “Buy” rating by TheStreet since 12/4/18.
It currently has a bullish BLM score of 82; however, its MFI score of 85.23 exceeds its RSI score of 74.30, which may be a cause for concern going forward. It experienced a bullish MACD crossover pattern at the beginning of the new year.
Glu Mobile Inc. publishes and markets a portfolio of mobile games for users of smartphones and tablet devices. Following a quarter-over-quarter earnings gain of 97.9%, the stock was given a “Buy” rating by Stephens & Company on 1/11/19 with a price target of $10.50 and a “Long” rating by the Street.
Technically, the stock has gained 153% over the past 52 weeks. It has a bullish BLM score of 66, and it experienced a bullish MACD crossover pattern in the first week of January. Its RSI (70.39) and MFI (74.57) are not excessively high, suggesting that the stock may still have room to run.
Veracyte, Inc. is a small-cap biotechnology company using genomic technology to resolve diagnostic ambiguity. Its products combine genomic technology, clinical science, and machine learning to transform the diagnosis of thyroid cancer, lung cancer, and idiopathic pulmonary fibrosis. It has seen 44.3% quarter-over-quarter earnings growth and 170% annual share price growth.
Technically, the stock now has a bullish BLM score of 64 and experienced a bullish MACD crossover pattern in the first week of January 2019. Its RSI and MFI scores are moderately high, which suggests the need for caution going forward.
Alteryx, Inc. is a self-service data analytics software providing company. The company democratizes access to data-driven insights for all data workers, business analysts, programmers and data scientists by expanding capabilities and analytical sophistication. The company’s platform is designed to interact with a wide variety of traditional data sources and is also capable of processing data from cloud applications, such as Google Analytics, Marketo, NetSuite, Salesforce, and Workday, as well as social media platforms, such as Facebook and Twitter. The company has experienced 93% most recent quarter-over-quarter earnings growth, and 162% annual share price growth.
Technically, the stock now has a bullish BLM score of 64 and has experienced a bullish MACD crossover pattern as of the first week of January 2019. Although its MFI score of 76.56 is moderately higher than its RSI score of 65.76, neither score is excessively high, which suggests that there may still be room to run.
The Bounce/Lag Momentum algorithm is thoroughly described in my book, Trading Stocks by the Numbers, available at Amazon. Recently, I have expanded the algorithm to include the influence of regression residuals, also explained in the book.
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 TWLO, INS, GLUU, VCYT, AYX 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.