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3 Momentum Anomaly Picks as Recession Fears Spur Volatility
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After witnessing a steady uptrend over the past few weeks, the broader U.S. equity markets fell sharply in the last few trading days due to fears of recession. The sell-off was triggered mainly by weaker-than-expected job market data with nonfarm payrolls growing by just 114,000 last month compared with broad-based expectations of 185,000 job additions. With the unemployment rate increasing to 4.3%, investors feared that the Federal Reserve's prolonged high-interest rate regime led to dismal job market conditions.
This, in turn, sparked a global market sell-off and ripples were felt worldwide, with Japan’s stock market being the worst hit. However, the markets recovered partially yesterday with a rebound in Japan, although volatility remained elevated with the unwinding of the yen “carry trade” as the yen rose in value versus the U.S. dollar.
Amid the uncertainty, investors often seek to employ time-tested winning strategies to fetch sustained profits. One of the most successful game plans to beat the blues is to bet on momentum stocks when value or growth investing fails to generate the desired profits.
This approach primarily tends to follow the adage, “the trend is your friend.” At its core, momentum investing is “buying high and selling higher.” It is based on the idea that once a stock establishes a trend, it is more likely to continue in that direction because of the momentum that is already behind it.
Momentum investing is a way to profit from the general human tendency to extrapolate current trends into the future. It is based on that gap in time before the mean reversion occurs, i.e., before prices become rational again.
Momentum strategies have been known to be alpha-generative over a long period and across market stages. So, this strategy is quite tricky to implement, as detecting these trends is no child’s play.
Here, we have created a strategy to help investors get in on these fast movers and rake in handsome gains. Our screen will help you benefit from both long-term price momentum and a short-term pullback in price.
Screening Parameters
Percentage Change in Price (52 Weeks) = Top #50: This selects the top 50 stocks with the best percentage price change over the last 52 weeks. This parameter ensures we get the best stocks that have appreciated steadily over the past year.
Percentage Change in Price (1 Week) = Bottom #10: From the above 50 stocks, we then choose those that are also among the 10 worst performers over a short one-week period. This parameter picks the ones that have witnessed a short-term pullback in price.
Momentum Style Score of B or Better: A top Momentum Style Score knocks out a lot of the screening process as it takes into account several factors that include volume change and performance relative to its peers. It indicates when the timing is best to grab a stock and take advantage of its momentum with the highest probability of success. Stocks with a Momentum Score of A or B, when combined with a Zacks Rank #1 or 2 (Buy), handily outperform other stocks.
Current Price greater than $5: The stocks must all be trading at a minimum of $5.
Market Capitalization = Top #3000: We have chosen stocks that are among the top 3000 in terms of market value to ensure the stability of price.
Average 20-Day Volume greater than 100,000: A substantial trading volume ensures that these stocks are easily tradable.
Here are three stocks out of the four that made it through this screen:
Based in Columbus, OH, M/I Homes is one of the nation's leading homebuilders of single-family homes. In addition, the company purchases undeveloped land to turn into developed lots for the construction of single-family homes, as well as for sale to others. The stock has surged 47.3% in the past year but declined 12.4% in the past week. M/I Homes has a Momentum Score of A.
Headquartered in Moline, IL, QCR Holdings is a multi-bank holding company that provides commercial and consumer banking and asset management services. The company has 36 locations in Iowa, Missouri, Wisconsin and Illinois. The stock has gained 32.5% in the past year but declined 8.9% in the past week. QCR Holdings has a Momentum Score of A.
Based in Coppell, TX, Mr. Cooper Group is the largest home loan servicer in the country, focused on delivering a variety of servicing and lending products, services and technologies. It provides customer-centric servicing, origination and transaction-based services related principally to single-family residences throughout the United States. The stock has rallied 44.4% in the past year but lost 8.4% in the past week. Mr. Cooper Group has a Momentum Score of B.
You can get the rest of the stocks on this list by signing up now for your 2-week free trial to the Research Wizard and start using this screen in your trading. Further, you can also create your own strategies and test them first before taking the investment plunge.
The Research Wizard is a great place to begin. It's easy to use. Everything is in plain language. And it's very intuitive. Start your Research Wizard trial today. And the next time you read an economic report, open up the Research Wizard, plug your finds in, and see what gems come out.
Disclosure: Officers, directors and/or employees of Zacks Investment Research may own or have sold short securities and/or hold long and/or short positions in options that are mentioned in this material. An affiliated investment advisory firm may own or have sold short securities and/or hold long and/or short positions in options that are mentioned in this material.
Image: Bigstock
3 Momentum Anomaly Picks as Recession Fears Spur Volatility
After witnessing a steady uptrend over the past few weeks, the broader U.S. equity markets fell sharply in the last few trading days due to fears of recession. The sell-off was triggered mainly by weaker-than-expected job market data with nonfarm payrolls growing by just 114,000 last month compared with broad-based expectations of 185,000 job additions. With the unemployment rate increasing to 4.3%, investors feared that the Federal Reserve's prolonged high-interest rate regime led to dismal job market conditions.
This, in turn, sparked a global market sell-off and ripples were felt worldwide, with Japan’s stock market being the worst hit. However, the markets recovered partially yesterday with a rebound in Japan, although volatility remained elevated with the unwinding of the yen “carry trade” as the yen rose in value versus the U.S. dollar.
Amid the uncertainty, investors often seek to employ time-tested winning strategies to fetch sustained profits. One of the most successful game plans to beat the blues is to bet on momentum stocks when value or growth investing fails to generate the desired profits.
This approach primarily tends to follow the adage, “the trend is your friend.” At its core, momentum investing is “buying high and selling higher.” It is based on the idea that once a stock establishes a trend, it is more likely to continue in that direction because of the momentum that is already behind it.
Momentum investing is a way to profit from the general human tendency to extrapolate current trends into the future. It is based on that gap in time before the mean reversion occurs, i.e., before prices become rational again.
In this context, stocks like M/I Homes, Inc. (MHO - Free Report) , QCR Holdings, Inc. (QCRH - Free Report) and Mr. Cooper Group Inc. (COOP - Free Report) are worth betting on.
Momentum strategies have been known to be alpha-generative over a long period and across market stages. So, this strategy is quite tricky to implement, as detecting these trends is no child’s play.
Here, we have created a strategy to help investors get in on these fast movers and rake in handsome gains. Our screen will help you benefit from both long-term price momentum and a short-term pullback in price.
Screening Parameters
Percentage Change in Price (52 Weeks) = Top #50: This selects the top 50 stocks with the best percentage price change over the last 52 weeks. This parameter ensures we get the best stocks that have appreciated steadily over the past year.
Percentage Change in Price (1 Week) = Bottom #10: From the above 50 stocks, we then choose those that are also among the 10 worst performers over a short one-week period. This parameter picks the ones that have witnessed a short-term pullback in price.
Zacks Rank #1: Stocks sporting a Zacks Rank #1 (Strong Buy) have a proven history of outperformance irrespective of the market conditions. You can see the complete list of today’s Zacks #1 Rank stocks here.
Momentum Style Score of B or Better: A top Momentum Style Score knocks out a lot of the screening process as it takes into account several factors that include volume change and performance relative to its peers. It indicates when the timing is best to grab a stock and take advantage of its momentum with the highest probability of success. Stocks with a Momentum Score of A or B, when combined with a Zacks Rank #1 or 2 (Buy), handily outperform other stocks.
Current Price greater than $5: The stocks must all be trading at a minimum of $5.
Market Capitalization = Top #3000: We have chosen stocks that are among the top 3000 in terms of market value to ensure the stability of price.
Average 20-Day Volume greater than 100,000: A substantial trading volume ensures that these stocks are easily tradable.
Here are three stocks out of the four that made it through this screen:
Based in Columbus, OH, M/I Homes is one of the nation's leading homebuilders of single-family homes. In addition, the company purchases undeveloped land to turn into developed lots for the construction of single-family homes, as well as for sale to others. The stock has surged 47.3% in the past year but declined 12.4% in the past week. M/I Homes has a Momentum Score of A.
Headquartered in Moline, IL, QCR Holdings is a multi-bank holding company that provides commercial and consumer banking and asset management services. The company has 36 locations in Iowa, Missouri, Wisconsin and Illinois. The stock has gained 32.5% in the past year but declined 8.9% in the past week. QCR Holdings has a Momentum Score of A.
Based in Coppell, TX, Mr. Cooper Group is the largest home loan servicer in the country, focused on delivering a variety of servicing and lending products, services and technologies. It provides customer-centric servicing, origination and transaction-based services related principally to single-family residences throughout the United States. The stock has rallied 44.4% in the past year but lost 8.4% in the past week. Mr. Cooper Group has a Momentum Score of B.
You can get the rest of the stocks on this list by signing up now for your 2-week free trial to the Research Wizard and start using this screen in your trading. Further, you can also create your own strategies and test them first before taking the investment plunge.
The Research Wizard is a great place to begin. It's easy to use. Everything is in plain language. And it's very intuitive. Start your Research Wizard trial today. And the next time you read an economic report, open up the Research Wizard, plug your finds in, and see what gems come out.
Click here to sign up for a free trial to the Research Wizard today.
Disclosure: Officers, directors and/or employees of Zacks Investment Research may own or have sold short securities and/or hold long and/or short positions in options that are mentioned in this material. An affiliated investment advisory firm may own or have sold short securities and/or hold long and/or short positions in options that are mentioned in this material.
Disclosure: Performance information for Zacks’ portfolios and strategies are available at: https://www.zacks.com/performance.