Some experts believe that momentum investing strategy works, particularly in sectors where there is an obvious mega trend. Picture Getty
Hot Money Monday: Use momentum strategy on megatrends like AI, and possibly these ASX small caps
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Momentum-oriented investors live by the saying “the trend is your friend”.
In essence, a momentum trader will be “buying high, but hoping to sell even higher” – which is the counter to the well known strategy of “buy low and sell high”.
Some experts believe that momentum investing is a great strategy when applied to sectors where there is an obvious mega trend.
This could be in technologies such as artificial intelligence or autonomous vehicles, where the trend is unlikely to slow down anytime soon.
Yes sure there will be short-term corrections, but successful momentum investors would keep on buying into this trend and ride out the short-term corrections.
It goes without saying that nothing is foolproof, and momentum traders could still get it wrong.
Trading based on momentum also involves a bit more risk as 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.
Fortunately, there are several indicators to quantify those key points, 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 |
|---|---|---|---|---|---|---|
| BSA | BSA Ltd | $0.69 | 0.00% | 15.00% | 21.05% | 18.97% |
| AHC | Austco Healthcare | $0.20 | 0.00% | 8.11% | 14.29% | 66.67% |
| VLS | Vita Life Sciences | $1.95 | 0.00% | 2.90% | 30.00% | 21.88% |
| ACP | Audalia Resources | $0.02 | 0.00% | 16.67% | -- | -- |
| ONE | Oneview Healthcare | $0.33 | 0.00% | 35.42% | 35.42% | 182.61% |
| BHD | Benjamin Hornigold | $0.26 | 0.00% | 1.96% | 18.18% | 18.18% |
| AND | Ansarada Group | $1.87 | 0.00% | 13.03% | 26.87% | 39.18% |
| KOV | Korvest | $9.19 | 0.11% | 11.39% | 7.23% | 14.88% |
| ACE | Acusensus | $0.93 | 0.27% | 3.33% | 38.81% | 50.00% |
| GTK | Gentrack Group | $6.84 | 0.29% | 15.15% | 74.49% | 169.29% |
The compliance software company continues to be profitable and positive free cash flow after reporting its Q2 FY24 performance.
Annual recurring revenue (ARR) was $11.9m, up 7% on pcp.
ARR subscribers were 217, up 7% on pcp with 95% retention rates.
Adjusted EBITDA was $3m, with margin of 21%.
Net cash in hand was $24.6m, with zero debt.
Korvest is a South Australian based company that is involved in hot dip galvanising, sheet metal fabrication, and the manufacture of cable and pipe support systems and fitting.
Shares have been rising after the company reported H1 NPAT of $5.72m, up 26.5% from the pcp.
Earnings per share (EPS) was 49.1c, up from 39.1c in the pcp.
In terms of outlook, Korvest says major infrastructure projects’ volume in the second half is expected to continue at similar levels to 1H, albeit with a change in mix of projects.
Day-to-day and project markets are expected to remain strong, subject to broader economic conditions.
Working capital levels are steady, but can change with major project activity.
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 |
|---|---|---|---|---|---|---|
| BTR | Brightstar Resources | $0.01 | >5% Above SMA | 1 to 5% Above SMA | -1 to -5% Below SMA | 1 to 5% Above SMA |
| BP8 | BPH Global | $0.00 | >5% Above SMA | 0 to -1% Below SMA | 0 to 1% Above SMA | -- |
| CT1 | Constellation Tech | $0.00 | >5% Above SMA | 1 to 5% Above SMA | 1 to 5% Above SMA | < -5% Below SMA |
| PER | Percheron Therapeutics | $0.08 | >5% Above SMA | >5% Above SMA | >5% Above SMA | >5% Above SMA |
| ASB | Austal | $2.17 | >5% Above SMA | 1 to 5% Above SMA | >5% Above SMA | 1 to 5% Above SMA |
| ASP | Aspermont | $0.01 | >5% Above SMA | < -5% Below SMA | < -5% Below SMA | < -5% Below SMA |
| LPD | Lepidico | $0.01 | >5% Above SMA | 1 to 5% Above SMA | -1 to -5% Below SMA | < -5% Below SMA |
| AUZ | Australian Mines | $0.01 | >5% Above SMA | 1 to 5% Above SMA | 0 to -1% Below SMA | < -5% Below SMA |
| TD1 | TALI Digital | $0.00 | >5% Above SMA | >5% Above SMA | >5% Above SMA | 0 to 1% Above SMA |
| BAS | Bass Oil | $0.07 | >5% Above SMA | 1 to 5% Above SMA | -1 to -5% Below SMA | < -5% Below SMA |
Percheron Therapeutics (ASX:PER)
Percheron recently announced that the final data from a Phase 2a study of its investigational drug, ATL1102, in Duchenne muscular dystrophy has been published in a peer-reviewed scientific journal.
The study enrolled 9 boys with confirmed Duchenne muscular dystrophy (DMD), ranging from 12 – 18 years of age.
The drug was generally safe and well-tolerated, with no patients withdrawing from the study for safety reasons and no serious unexpected adverse drug reactions reported. The most common adverse events were injection site reactions.
Further data is anticipated in the second half of this year.
BPH has recently entered into two new agreements with the China Tobacco group, for the sale and distribution of bird’s nest products via China Tobacco’s outlets in the City of Guangzhou in China for calendar year 2024.
The principal terms of the agreements include: Commencement date 1 January 2024 with a term 12 months.
Products to be supplied include: pure bird’s nest 50g box, and bird’s nest drink.
Guangzhou is at the heart of the Guangdong-Hong Kong-Macau Greater Bay Area, the most populous built-up metropolitan area in the world.
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 |
|---|---|---|---|---|
| CYM | Cyprium Metals | -- | Oversold | -- |
| WNR | Wingara Ag | Oversold | Oversold | -- |
| GAP | Gale Pacific | -- | Oversold | Oversold |
| G6M | Group 6 Metals | -- | Oversold | -- |
| SPA | Spacetalk | -- | Oversold | -- |
| CAI | Calidus Resources | -- | Oversold | -- |
| PPK | PPK Group | -- | Oversold | -- |
| PTR | Petratherm | Oversold | Oversold | Oversold |
| LIN | Lindian Resources | Oversold | Oversold | -- |
| RDS | Redstone Resources | Oversold | Oversold | -- |
For Q2 FY24, Annual recurring revenue (ARR) increased 28% vs pcp to $9.5m.
Spacetalk says it has continued momentum towards its target of achieving neutral free cash flow in 2H 2024.
Cash in bank was $2.9m at period end.
PTR lost -18pc on Friday, on the back of weakness in uranium stocks.
Earlier in the week, the company reported that a data review over the recently acquired 100% owned Muckanippie Project area has identified a significant uranium (U) anomaly and numerous gold anomalies.
Drill hole (MKAC060) records uranium assays up to 58ppm at shallow depths within a reduced interpreted paleo-channel clay sequence.
Meanwhile, numerous gold anomalous prospect areas have also been identified, including the Malbooma Gold occurrence.
Gold values up to 22g/t Au were returned from Malbooma grab samples from historic diggings.
Stockhead has not provided, endorsed or otherwise assumed responsibility for any perceived financial product advice contained in this article.
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