To be a successful momentum trader, one needs to be able to identify the best stocks quickly and accurately. Picture Getty
Hot Money Monday: Laramide, Andromeda, Cryosite are rising on momentum. Are they a buy?
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The rationale behind momentum trading strategy is that, if there is enough buying force behind the rise in the price of a stock, the stock price will keep on rising until a strong selling pressure is seen in the market to reverse the trend.
Similarly, a trader can short sell a stock if it has fallen rapidly (or oversold), and then buy it back when the price seems to have reached a bottom.
Momentum trading therefore involves chasing the market by identifying the trend in price action of a specific stock, and predicting whether that trend is likely to continue.
In essence, a momentum trader looks for a good entry point.
Obviously there’s a bit of risk involved in momentum trading because by definition, you’re making a decision to buy/sell a stock based on recent activities of other traders.
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 |
|---|---|---|---|---|---|---|
| HIT | HiTech Group | $2.35 | 0.00% | 9.81% | 30.56% | 11.90% |
| BLY | Boart Longyear | $2.90 | 0.00% | 65.71% | 81.25% | 45.00% |
| LAM | Laramide Resources | $0.86 | 0.00% | 16.22% | 70.30% | 43.33% |
| LPI | Lithium Power | $0.56 | 0.00% | 2.75% | 77.78% | 16.67% |
| NZK | NZ King Salmon | $0.26 | 0.00% | 10.87% | 34.21% | 30.77% |
| IPX | Iperionx | $1.70 | 0.00% | 27.82% | 54.55% | 103.59% |
| MRM | MMA Offshore | $2.00 | 0.00% | 14.61% | 61.29% | 107.25% |
| OJC | Original Juice | $0.19 | 0.00% | 32.14% | 122.89% | 40.15% |
| KPG | Kelly Partners | $5.38 | 0.37% | 13.03% | 15.70% | 20.09% |
| VHT | Volpara Health | $1.11 | 0.45% | 1.37% | 18.72% | 40.51% |
The company’s shares are currently under a voluntary suspension pending the outcome of an independent Preliminary Economic Assessment for one of its projects in the US.
The company expects the suspension to last until at the latest, Thursday, February 1.
In November last year, the uranium explorer completed a fully subscribed $12m placement following an announcement that it had made a new discovery with an “Off-Scale” radioactivity reading from a surface reconnaissance drilling at the Westmoreland Project in NW Queensland.
Assay results from the Amphitheatre target confirmed that shallow uranium mineralisation continues to the south:
– (AM23DD004) 2.8m @ 392ppm U3O8 from 43m depth
– (AM23DD005) 2.55m @ 439ppm U3O8 from 8.45m depth including 0.6m @ 920ppm U3O8
A higher than 65,535cps “Off-Scale” radioactivity reading was discovered at surface during the reconnaissance exploration at the new prospect, named U-Valley.
Kelly announced earlier this month the completion of its partnership with a second accounting business located in California.
Details on the partnership are as follows:
Location: Burbank, Los Angeles, CA
Revenue to Group: US$2.7m to US$3.3m
NPATA to Parent: US$0.3m to US$0.4m
The acquired business will be rebranded to Kelly Partners Burbank. The existing partner of the acquired business will continue as a 49.9% equity partner.
This represents the second business joining the Kelly Partners Group in the US.
“The partnership is not material to KPG, however it indicates our focus on the California market,” said the company.
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 |
|---|---|---|---|---|---|---|
| ADN | Andromeda Metals | $0.03 | >5% Above SMA | 1 to 5% Above SMA | >5% Above SMA | < -5% Below SMA |
| ADY | Admiralty Resources NL | $0.01 | >5% Above SMA | >5% Above SMA | >5% Above SMA | -1 to -5% Below SMA |
| A1N | ARN Media | $0.98 | >5% Above SMA | 0 to 1% Above SMA | 1 to 5% Above SMA | 1 to 5% Above SMA |
| ARE | Argonaut Resources NL | $0.13 | >5% Above SMA | >5% Above SMA | >5% Above SMA | >5% Above SMA |
| FFG | Fatfish Group | $0.05 | >5% Above SMA | >5% Above SMA | >5% Above SMA | >5% Above SMA |
| BKY | Berkeley Energia | $0.34 | >5% Above SMA | 1 to 5% Above SMA | -1 to -5% Below SMA | < -5% Below SMA |
| CMP | Compumedics | $0.37 | >5% Above SMA | >5% Above SMA | >5% Above SMA | >5% Above SMA |
| SFG | Seafarms Group | $0.01 | >5% Above SMA | 1 to 5% Above SMA | 1 to 5% Above SMA | 0 to -1% Below SMA |
| ODE | Odessa Minerals | $0.01 | >5% Above SMA | >5% Above SMA | 1 to 5% Above SMA | -1 to -5% Below SMA |
| CTE | Cryosite | $0.75 | >5% Above SMA | >5% Above SMA | >5% Above SMA | 1 to 5% Above SMA |
On Friday last week, Andromeda announced that it has entered into a sales and distribution agreement for its kaolin products into the Mediterranean region, with IberoClays.
Under the agreement, ADN’s Great White CRM – a refined, dried, bagged product for use by end-users in the high-end ceramics market – will be be made for sale into the ceramics and tile sectors.
This includes an agreement to sell 8,000 wet metric tonnes (wmt) in the first year, with IberoClays having an option to increase this to 10,000 wmt.
ADN’s Great White HRM will also be marketed for sale by IberoClays into the concrete industry for a volume 2,000 wmt per annum.
The agreement includes an initial term of five years from delivery of the first shipment.
The clinical trials services company has been rising since proposing that the company provide a return of capital of 5 cents per share to shareholders, by way of an equal reduction.
The return of capital will not involve any cancellation of shares, or change the status of the company’s shares as fully paid shares.
An equal capital reduction is a pro rata reduction of a company’s share capital by returning part of the share capital to its shareholders, as allowed by the Corporations Act.
If the capital reduction is approved by shareholders, eligible shareholders will each receive a cash payment of 5 cents for each share they hold on the record date.
If the capital reduction is not approved by shareholders, then the capital reduction will not be undertaken, and shareholders will not receive the cash payment.
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 |
|---|---|---|---|---|
| ABG | Abacus Group | -- | Oversold | -- |
| CMW | Cromwell Property | -- | Oversold | -- |
| HAV | Havilah Resources | Oversold | Oversold | -- |
| BUB | Bubs Australia | -- | Oversold | -- |
| JRV | Jervois Global | -- | Oversold | -- |
| LAU | Lindsay Australia | -- | Oversold | -- |
| MTB | Mount Burgess Mining | Oversold | Oversold | -- |
| A1M | AIC Mines | -- | Oversold | -- |
| HLS | Healius | -- | Oversold | -- |
| WBE | Whitebark Energy | -- | Oversold | -- |
The infant formula company’s shares have been falling as sales in China deteriorated further in Q1 of FY24.
Bubs reported that gross revenue from China was $3.8m in Q1, down 51% on the pcp.
Across the group however, Bubs’ total gross revenue was $24.3m, up 21.7% on the pcp, boosted by its strong performance in the US where gross revenue was $11.6m, up 24.1% on pcp.
USA now represents 48% of the group’s gross revenue.
For the full year of FY24, Bubs is forecasting USA net revenue to be at least $48m, up 100% on FY23.
Bubs is the top infant formula goat milk in the US, with over 330,000 tins sold financial year to date by the end of November 2023. The company’s products are ranged in over 5,900 stores across the USA.
The logistics company’s shares have been falling amid what its CEO, Clayton McDonald, admits is a difficult trading environment for the firm.
Lindsay’s Rural division grew revenue by 4% to $163 million in FY23; however, underlying profit before tax was reduced by just over a $1m to $9.7 million.
Rural trading conditions were impacted by industry inventory overstocking, global price volatility and inflationary impacts.
On the transport side, customer enquiries remain strong and tender conversion is positive despite market pressures, says McDonald.
“Based on the current volume profile and market conditions, we expect FY24 to deliver between $102m and $108m EBITDA, with the mid-point representing a 16% increase over our FY23 result,” he said.
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