Momentum investing involves making long-term investments in assets showing an upward trend. Picture Getty
Hot Money Monday: Here’s why tweaking the ‘buy low, sell high’ strategy could generate handsome profits
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Everyone says “buy low, sell high” for seemingly obvious reasons.
But what if you could apply a slight variation of that advice… and seeing great returns doing it?
These investors exist, and they follow a strategy called momentum investing.
Momentum investing involves making investments in assets showing an upward trend, by buying a stock that has shown a significant movement in price or volume.
Momentum traders believe that a stock that’s trending up will continue to head in the same direction because of the momentum that is already behind them.
Obviously there’s a bit of risk involved in momentum trading because in essence, you’re making a decision to buy a stock based on recent buying activities of other traders.
So to be a successful momentum trader, one needs to be able to identify the best stocks quickly and accurately.
The goal for momentum traders is basically to enter into trades at key points in the trend in order to maximise profits.
There are several indicators to quantify momentum, and here we look at three main signals used by the market:
- 52-week high
- Simple Moving Average
- Relative Strength Index
10 ASX small caps nearest or at 52-week highs
Traders often view the 52-week highs as entry signals.
This is due what’s called the “52-week high effect” – where if a price has broken out above its 52-week range, there must be some factor that generated enough momentum to further continue the price movement in the same direction.
On the other hand, if a stock is far away from its 52-week high, chartists believe the momentum will continue going that way.
10 ASX small caps at 52-week high
(data from Commsec)
| Code | Name | Price | How far from 52-Week High? | 1 mth return | 6 mth return | 12 mth return |
|---|---|---|---|---|---|---|
| BTC | BTC Health | $0.0650 | 0.00% | 59% | 242% | 71% |
| KEY | Key Petroleum | $0.0020 | 0.00% | 33% | 0% | -- |
| ROG | Red Sky Energy | $0.0060 | 0.00% | 9% | 50% | 0% |
| SIO | Simonds Group | $0.1800 | 0.00% | 13% | 44% | 15% |
| HLA | Healthia | $1.7900 | 0.00% | 2% | 47% | 46% |
| PFP | Propel Funeral | $4.7400 | 0.42% | 10% | 11% | 2% |
| STP | Step One Clothing | $0.7200 | 0.69% | 24% | 129% | 200% |
| VMM | Viridis Mining | $1.3200 | 1.12% | 52% | 560% | 389% |
| ENA | Ensurance | $0.2700 | 1.82% | 0% | 32% | 13% |
| EML | EML Payments | $1.2550 | 1.95% | 17% | 86% | 141% |
The residentials developer announced important changes to the role of its executive chair, and the appointment of a new CEO.
Having served in the dual capacity of executive chair and CEO since 2021, Rhett Simonds will now serve solely as executive chair.
This will allows him to focus on key strategic issues, including the under-supply of housing facing the nation, key external relationships and other important growth opportunities.
And having served alongside Simonds as chief financial officer, David McKeown will be promoted to the position of CEO.
This provides a seamless transition and allows McKeown to continue to deliver on the turnaround of the core business built under Gary Simonds’ leadership, including the return to profit announced on 10 October.
Propel Funeral Partners (ASX:PFP)
Propel confirmed media speculations that it has received inbound interest regarding a potential takeover.
The company said the nature of this interest has been unsolicited, preliminary, highly conditional and non-binding.
Propel said it has appointed Barrenjoey as financial adviser, and Corrs Chambers Westgarth as legal advise, and will continue to update the market in accordance with its continuous disclosure obligations.
10 ASX small caps with prices above SMA
Simple Moving Averages (or SMA) is another indicator that can be used to gauge momentum.
SMA is often used to determine whether a stock price will continue in the same direction, or if it will reverse a bull or bear trend.
As a general rule, if the current stock price is above the SMA, the price trend is up. If the price is below the SMA, the trend is down.
10 ASX small caps at prices above SMA
(data from Commsec)
| Code | Name | Last Price Value | Price vs. Simple Moving Average | Price vs. 20 day SMA | Price vs. 50 day SMA | Price vs. 200 day SMA |
|---|---|---|---|---|---|---|
| FL1 | First Lithium | $0.4250 | >5% Above SMA | >5% Above SMA | >5% Above SMA | >5% Above SMA |
| ADN | Andromeda Metals | $0.0250 | >5% Above SMA | >5% Above SMA | >5% Above SMA | < -5% Below SMA |
| AEI | Aeris Environmental | $0.0250 | >5% Above SMA | 0 to 1% Above SMA | 0 to -1% Below SMA | < -5% Below SMA |
| CT1 | Constellation Tech | $0.0040 | >5% Above SMA | >5% Above SMA | >5% Above SMA | < -5% Below SMA |
| BIS | Bisalloy Steel | $2.7500 | >5% Above SMA | >5% Above SMA | >5% Above SMA | >5% Above SMA |
| ARE | Argonaut Resources | $0.0850 | >5% Above SMA | >5% Above SMA | 1 to 5% Above SMA | < -5% Below SMA |
| CYM | Cyprium Metals | $0.0270 | >5% Above SMA | 1 to 5% Above SMA | < -5% Below SMA | < -5% Below SMA |
| ASB | Austal | $1.8750 | >5% Above SMA | 1 to 5% Above SMA | 1 to 5% Above SMA | -1 to -5% Below SMA |
| FFG | Fatfish Group | $0.0120 | >5% Above SMA | 1 to 5% Above SMA | 1 to 5% Above SMA | < -5% Below SMA |
| AUZ | Australian Mines | $0.0140 | >5% Above SMA | 1 to 5% Above SMA | 0 to 1% Above SMA | < -5% Below SMA |
Andromeda has been rising since announcing a binding offtake agreement with China’s Foshan Gaoming Xing-Yuan Machinery, for the sale of high-quality kaolin from The Great White Project during its first five years of production.
Foshan is a company based in Foshan City, a major ceramics production base located in Guangdong Province, China.
The agreement is for the supply and delivery of a total of 115,000 tonnes of Great White CRM over the five-year period, and 5,000 tonnes of Great White KCM 90 in the first year of production.
Austal Australia has delivered the sixth of eight Evolved Cape-class Patrol Boats (ECCPBs) to the Royal Australian Navy.
The vessel, ADV Cape Pillar, was officially accepted by the Commonwealth of Australia at Austal’s Henderson, Western Australia shipyard in October.
“The Austal Australia team, collaborating with the Department of Defence, the Royal Australian Navy and our valued supply chain partners, are very clearly demonstrating what the National Naval Shipbuilding Enterprise is capable of – delivering sovereign capability for Australia,” said Austal’s CEO, Paddy Gregg.
Austal is now on track to deliver the remaining two Evolved Cape-class Patrol Boats currently under construction at Henderson, WA, in 2024; completing the fleet of eight vessels.
10 ASX small caps with low RSI (Oversold)
Here’s another momentum signal used by the market – the Relative Strength Index (RSI).
RSI is a measure of the strength of a stock’s momentum, either in the upward or the downward direction, and is used to indicate whether a stock is oversold or undersold.
Generally speaking, an RSI above 70 means a stock is overbought; and an RSI below 30 indicates that it’s oversold.
An RSI above 80 meanwhile is strongly overbought, and an RSI below 20 is strongly oversold.
10 ASX small caps at prices with RSI Oversold signal
(data from Commsec)
| Code | Name | 2 Day RSI | 9 Day RSI | 14 Day RSI | 20 Day RSI |
|---|---|---|---|---|---|
| ECS | ECS Botanics | -- | Oversold | -- | -- |
| SHE | Stonehorse Energy | -- | Oversold | -- | -- |
| OPL | Opyl | Oversold | Oversold | -- | -- |
| TIA | Tian An Australia | -- | Oversold | -- | -- |
| SHN | Sunshine Metals | -- | Oversold | Oversold | -- |
| RMI | Resource Mining | Oversold | Oversold | Oversold | -- |
| FGL | Frugl Group | -- | Oversold | -- | -- |
| GBE | Globe Metals | -- | Oversold | -- | -- |
| TOE | Toro Energy | -- | Oversold | -- | -- |
| VBC | Verbrec | -- | Oversold | Oversold | -- |
In the last quarter, Toro completed a successful capital raising of $4.22m by issuing new shares at $0.01 per share to institutional, sophisticated and professional investors.
Funds will support further development of the Wiluna Uranium Project, the Dusty Nickel Project and working capital requirements.
The mid-tier engineering company said divestment has occurred in non-profitable training sites and assets, which has resulted an estimated $2 million annualised EBITDA savings.
Further operational review has resulted in estimated $1.8 million annualised EBITDA savings.
The company says it’s phasing out of low margin, higher risk construction activities, and targeting a return to positive EBITDA margin in Q1 FY24.
Stockhead has not provided, endorsed or otherwise assumed responsibility for any perceived financial product advice contained in this article.
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