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 6 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. Often it is possible early in the week to see whether the positive momentum for these picks is still in place. Otherwise, they should be avoided.
Performance of Last Week's Picks
Last week's five stock picks gained an overall average of 6.63% on the week. However, as the table below illustrates, this positive performance was possible only by using 2% trailing stop-loss orders. Otherwise, the overall averages showed a loss of 1.17% for the week. This underscores the need for a well-defined exit strategy in order to be successful.
|Stock Symbol||Weekly Gain (Loss)||Weekly Gain(Loss) with 2% Stop-Loss*|
|Intelligent Systems Corporation (INS)||(9.96%)||11.40%|
|Apyx Medical Corporation (APYX)||(2.91%)||(0.46%)|
|Twilio Inc. (TWLO)||7.93%||7.93%|
|SMTC Corporation (SMTX)||(17.52%)||(0.34%)|
|Centrais Eletricas Brasileiras S.A. - Eletrobras (EBR)||14.60%||14.60%|
*A word is needed about the use of stop-loss orders. As a rule, I prefer never to use stop-loss orders unless it is necessary for me to be away from the market during the trading day. This is because formal stop-loss orders provide a temptation to market makers to "take out the stops" if there is little trading volume. It is better to set a mental sell price and execute it when the market reaches that point. You can see from the table that three of the five stock picks for last week (INS, APYX, and SMTX) were affected by this stop-loss-setting procedure. Thus, setting a 2% mental stop-loss order for those stocks made the difference between finishing the week with a 6.63% average gain and a 1.17% average loss.
Another argument in favor of using stop-loss orders for these picks is that they all have already had big momentum moves by definition and are somewhat "long in the tooth." The BLM method identifies stocks with positive momentum only after they approach their 52-week highs. Thus, they are often vulnerable to sudden downturns, and capital preservation becomes a more serious issue than with valid picks made using other trading strategies.
A Look at Next Week's BLM Picks
For next week, the BLM algorithm has identified the following five picks along with their respective BLM scores: Twilio Inc. (TWLO) (93), eHealth (EHTH) (69), NanoString Technologies, Inc. (NSTG) (93), Glu Mobile Inc. (GLUU) (85) and MongoDB, Inc. (MDB) (65). Some of these stocks were picks in previous weeks. The BLM strategy attempts to take advantage of fractal gains. Thus, stocks from previous weeks often reappear if their technical considerations so dictate. Note that a BLM score above 30 is required to qualify as a weekly pick, but in challenging market conditions, I tend to favor only the two or three stocks with highest BLM scores. Charts of all of these picks are available 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, it is precisely for those same reasons that in each case, extreme caution is warranted.
Further information about the Bounce/Lag Momentum methodology is presented in my books available at Amazon.
Best wishes in your trading 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, 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.