One of the main benefits of momentum trading is that it can generate high returns in a short period of time, especially in volatile markets. Picture Getty
Hot Money Monday: Trend is your friend as these ASX small caps ride high on momentum
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We’ve all heard that “trend is your friend.” And who doesn’t like riding a trend?
Trend or momentum trading involves buying a stock that has shown a significant movement in price or volume.
Momentum traders believe that these trends will continue to head in the same direction because of the momentum that is already behind them.
One of the main benefits of momentum trading is that it can generate high returns in a short period of time, especially in volatile markets.
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 to 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 | $0.0600 | 0.00% | 46.340% | 233.330% | 50.000% |
| RIM | Rimfire Pacific Mining | $0.0100 | 0.00% | 42.860% | 25.000% | 25.000% |
| KEY | Key Petroleum | $0.0020 | 0.00% | 33.330% | 0.000% | 0.000% |
| ROG | Red Sky Energy | $0.0060 | 0.00% | 0.000% | 50.000% | 9.090% |
| AU1 | Agency Group | $0.0400 | 0.00% | 29.030% | 42.860% | 11.110% |
| NPM | Newpeak Metals | $0.0010 | 0.00% | 0.000% | 0.000% | 0.000% |
| ACP | Audalia Resources | $0.0120 | 0.00% | 20.000% | 20.000% | 20.000% |
| JAV | Javelin Minerals | $0.0010 | 0.00% | 0.000% | 0.000% | 0.000% |
| SIO | Simonds Group | $0.1800 | 0.00% | 12.500% | 44.000% | 11.720% |
| HLA | Healthia | $1.7800 | 0.00% | 1.710% | 45.900% | 24.910% |
In August 2023, Red Sky advised of the completion of construction of the pipeline of approximately 18km, tied in to the network to the south of the Yarrow gas field and completion of the Yarrow 3 well.
Red Sky has now announced that agreements have been finalised with the South Australian Cooper Basin Joint Venture (SACBJV) pertaining to the tie-in, transport and processing of Yarrow gas through the SACBJV network.
The tie-in agreement also entails the transfer of the southern 4km of the Yarrow flowline to the SACBJV, with the reimbursement to be received by Red Sky effectively mitigating a significant portion of our project’s farm-in costs. Following this integration, the Yarrow-Flax-Juniper line (YFJ line) will span 14km.
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 | $0.39 | >5% Above SMA | >5% Above SMA | >5% Above SMA | >5% Above SMA |
| AEI | Aeris Environmental | $0.03 | >5% Above SMA | 0 to 1% Above SMA | 0 to -1% Below SMA | < -5% Below SMA |
| CT1 | Constellation Technologies | $0.00 | >5% Above SMA | >5% Above SMA | 1 to 5% Above SMA | < -5% Below SMA |
| BIS | Bisalloy Steel Group | $2.55 | >5% Above SMA | 1 to 5% Above SMA | >5% Above SMA | >5% Above SMA |
| ARE | Argonaut Resources NL | $0.08 | >5% Above SMA | 1 to 5% Above SMA | 0 to 1% Above SMA | < -5% Below SMA |
| LPD | Lepidico | $0.01 | >5% Above SMA | -1 to -5% Below SMA | -1 to -5% Below SMA | < -5% Below SMA |
| ATR | Astron Corporation | $0.52 | >5% Above SMA | 1 to 5% Above SMA | 1 to 5% Above SMA | < -5% Below SMA |
| FML | Focus Minerals | $0.18 | >5% Above SMA | 1 to 5% Above SMA | 0 to 1% Above SMA | -1 to -5% Below SMA |
| BIT | Biotron | $0.10 | >5% Above SMA | 1 to 5% Above SMA | >5% Above SMA | >5% Above SMA |
| BKY | Berkeley Energia | $0.37 | >5% Above SMA | 1 to 5% Above SMA | -1 to -5% Below SMA | < -5% Below SMA |
Argounaut has been rising since announcing that it intends to concentrate future exploration activity to the uranium assets in South Australia and the Northern Territory.
The company said it is now well positioned to commence exploration following recent successful completion of the capital restructure and rights issue.
Earlier, Argonaut told the market that it has acquired two new significant uranium projects.
The two new projects, Mundaerno and Radium Hill South, are located within proximity to the company’s Frome project in the Curnamona Province and the Murray-Darling Basin of South Australia.
Lepidico recently advised that Phase 1 Project economics have been re-run using the latest Benchmark Mineral Intelligence (BMI) long-term lithium price forecasts, and for the first time include Ore Reserves for Helikon 4 and stockpiles.
Phase 1 investment fundamentals are robust with a post-tax NPV8 of US$457m for the integrated project.
The pre-tax NPV8 is US$522m, of which 32% is attributable to the Karibib operations and 68% to the Abu Dhabi chemical conversion operation. Capital costs estimates remain unchanged at US$266m.
Payback for the project remains less than three years.
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 |
|---|---|---|---|---|---|
| CLV | Clover Corporation | Oversold | Oversold | -- | -- |
| SW1 | Swift Networks | -- | Oversold | -- | -- |
| MEK | Meeka Metals | -- | Oversold | -- | -- |
| SDV | SciDev | Oversold | Oversold | -- | -- |
| MBH | Maggie Beer | -- | Oversold | -- | -- |
| OEL | Otto Energy | -- | Oversold | -- | -- |
| AVE | Avecho Biotech | -- | Oversold | -- | -- |
| SOM | SomnoMed | Oversold | Oversold | -- | -- |
| SSM | Service Stream | -- | Oversold | -- | -- |
| PV1 | Provaris Energy | Oversold | Oversold | -- | -- |
Swift has been sold off recently despite the company signing new infrastructure and subscription contracts with multiple Aged Care Providers worth $1.6m in revenue.
The company signed new infrastructure and subscription contracts with multiple aged care providers, including Eldercare, Royal Freemasons, and Retirees WA.
A renewal contract was also signed for Hall and Prior’s Karingal Green Health & Aged Care Community.
Meanwhile, Mineral Resources (ASX:MIN) expanded its agreement with Swift for an additional four sites.
SciDev recently reported Q1 FY24 revenue of $21.6m and cash receipts of $19.3m.
The company also secured a two-year contract at the Thunderbird Minerals Sands Project during the quarter, which is expected to generate approximately $7.0m in sales.
SciDev has also maintained its robust balance sheet, and said the business is well-capitalised to deliver further growth in to FY24.
Maggie Beer has been sliding since an update to the market concerning its acquisition of the Hampers & Gifts Australia (HGA) business.
Magie said that transaction involved the potential payment of contingent consideration to the HGA vendors, and a provision was initially raised by MBH for this earnout with a fair value of $14 million.
The earnout provision was subsequently reversed as a result of the earnout hurdle not being met.
MBH has received notice that the vendors do not agree with MBH’s determination of the earnout.
MBH said it will comply with the requirements in the share purchase deed to engage in good faith negotiations with the vendors, and use all reasonable endeavours to agree the matters being contested.
“If the parties are unable to reach agreement, the unresolved contested matters must be referred to an expert for binding resolution in accordance with the share purchase deed,” said MBH.
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