Momentum trading uses the strength of stock price movements as a foundation to open positions. Picture Getty
Hot Money Monday: Using momentum to pick out entry points, and ASX stocks with the momentum
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Momentum trading uses the strength of stock price movements as a foundation to open positions. The strategy seeks to use momentum to enter a trend as it picks up steam.
Stocks that have maintained a sustained rise over a period are often labeled “momentum stocks” or “high-flyers”.
Momentum traders believe that these trends will continue to head in the same direction because of the momentum that is already behind them.
Usually, stocks that are in the news accompanied by gaps, heavy volume and price volatility are most attractive to momentum traders.
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.
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 |
|---|---|---|---|---|---|---|
| MTL | Mantle Minerals | $0.0040 | 0.00% | 33.33% | 300.00% | 0.00% |
| IMB | Intelligent Monitoring | $0.2950 | 0.00% | 47.50% | 247.39% | 83.90% |
| CXU | Cauldron Energy | $0.0190 | 0.00% | 137.50% | 175.36% | 98.95% |
| AHC | Austco Healthcare | $0.2000 | 0.00% | 17.65% | 48.15% | 73.91% |
| VYS | Vysarn | $0.2550 | 0.00% | 41.67% | 112.50% | 200.00% |
| PIL | Peppermint Innovation | $0.0180 | 0.00% | 38.46% | 80.00% | 100.00% |
| TCG | Turaco Gold | $0.1050 | 0.00% | 110.00% | 94.44% | 81.03% |
| GES | Genesis Resources | $0.0090 | 0.00% | 28.57% | 80.00% | 12.50% |
| CPV | ClearVue Tech | $0.5200 | 0.00% | 76.27% | 173.68% | 197.14% |
| RTH | Ras Technology | $0.9350 | 0.00% | 12.65% | 71.56% | 64.04% |
Earlier this month, Mantle announced the grant of Mt Berghaus exploration licence E45/5899, which covers approximately 84km2 immediately north of De Grey Mining’s Hemi discovery.
This brings the company’s granted tenements in the area to a total of approximately 399km2.
Mantle believes the newly granted exploration licence is the most prospective of the three Mt Berghaus exploration licences.
The Mantle team has already developed an exploration model and planned for approximately 15,000m of aircore drilling for Mt Berghaus in the first half of 2024. This is in addition to the 15,000m aircore drilling program currently underway at Roberts Hill.
Austco recently announced that it has been awarded a $3.8 million contract in Singapore.
Under the deal, Ausco will refresh the Tacera Nurse Call platform at the 700-bed Ng Teng Fong General Hospital (NTFGH,) and the 400-bed Jurong Community Hospital (JCH), both part of the Jurong Health Campus.
With this contract win, Austco’s open sales orders stand at a new all-time high of $40.7 million.
A portion of the contract revenue will be recognised in the current financial year, with the remaining balance anticipated to be delivered in FY25.
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 | $0.66 | >5% Above SMA | >5% Above SMA | >5% Above SMA | >5% Above SMA |
| ACR | Acrux | $0.04 | >5% Above SMA | 1 to 5% Above SMA | 1 to 5% Above SMA | < -5% Below SMA |
| ADY | Admiralty Resources NL | $0.01 | >5% Above SMA | >5% Above SMA | 1 to 5% Above SMA | -1 to -5% Below SMA |
| AEI | Aeris Environmental | $0.03 | >5% Above SMA | >5% Above SMA | 1 to 5% Above SMA | < -5% Below SMA |
| BP8 | BPH Global | $0.00 | >5% Above SMA | 1 to 5% Above SMA | < -5% Below SMA | -- |
| AMO | Ambertech | $0.25 | >5% Above SMA | >5% Above SMA | >5% Above SMA | -1 to -5% Below SMA |
| AQD | Ausquest | $0.01 | >5% Above SMA | 1 to 5% Above SMA | 1 to 5% Above SMA | < -5% Below SMA |
| ARE | Argonaut Resources NL | $0.10 | >5% Above SMA | >5% Above SMA | >5% Above SMA | < -5% Below SMA |
| ASE | Astute Metals NL | $0.04 | >5% Above SMA | 1 to 5% Above SMA | -1 to -5% Below SMA | < -5% Below SMA |
| CYM | Cyprium Metals | $0.03 | >5% Above SMA | 1 to 5% Above SMA | -1 to -5% Below SMA | < -5% Below SMA |
The stem cell focused company rose after making changes to its board.
At the company’s AGM held on November 21, Huang Qing was not reelected as a director of the company.
In addition, Mathew Leonard has been appointed as managing director.
Ambertech recently provided the following update for the six-month period ending 31 December (H1 FY24):
Current expectations for 1HFY24 are:
– Revenue in the range of $47.0 million to $50.0 million (vs Dec 22: $40.5 million)
– Earnings before interest and tax (EBIT) in the range of $2.8 million to $3.4 million (vs Dec 22: $1.5 million)
– Net Profit After Tax (NPAT) in the range of $1.5 million to $1.9 million (vs Dec 22: $0.7 million).
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 | ||
|---|---|---|---|---|---|---|
| RR1 | Reach Resources | Oversold | Oversold | Oversold | -- | |
| HAW | Hawthorn Resources | -- | Oversold | -- | -- | |
| CIW | Clime Investment | -- | Oversold | -- | -- | |
| BKT | Black Rock Mining | -- | Oversold | -- | -- | |
| MTB | Mount Burgess Mining | -- | Oversold | -- | -- | |
| NMT | Neometals | -- | Oversold | -- | -- | |
| ABA | Auswide Bank | Oversold | Oversold | -- | -- | |
| YPB | YPB Group | -- | Oversold | -- | -- | |
| GW1 | Greenwing Resources | Oversold | Oversold | -- | -- | |
| CHN | Chalice Mining | Oversold | Oversold | -- | Oversold |
Gateway recently earned a 51% interest in Golden Mile Resources’ tenements E57/1039 and E57/1040.
Gateway has elected to earn a further 29% (for a total of 80%) in the tenements by further sole funding $500,000 of exploration on the tenements.
The ground covered by the farm-in agreement encompasses the exciting Woodley mineralised trend, with extensive historic small-scale mining activities and several outstanding historic drill intersections, but little systematic modern exploration.
As the dental device focused company’s chairman, Jeffery Cheetham, explained at last week’s AGM that in FY23, the company made solid progress focusing on successfully growing its key product categories.
However, Cheetham acknowledged that the new European Union Medical Device Regulation (MDR) has been a major focus for the SDI team over the last 12 months.
“Globally, product registration is becoming more difficult to achieve, adding a significant barrier to entry in our markets.”
Looking ahead to 2024, Cheetham said the company will be focused on a few goals, including the build of a new warehouse, and ensuring the European MDR registration is achieved.
“These are great goals for the year to ensure the company is well placed to achieve increased market share for the future,” he said.
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