The broader U.S. equity markets had witnessed intense volatility over the past few trading days as incessant threats of additional tariffs by President Trump and reciprocal tariffs by Beijing led to bitter trade skirmishes that show no signs of abatement. Despite ratcheting up threats of imposing an additional 100% tariffs for imports from China after the communist nation increased restrictions on rare earth metals (essential for the manufacture of semiconductors and electronics goods), Trump did soften his stance to keep the window open for negotiations. However, with Beijing declining to buy U.S. soybeans, Trump threatened to impose a cooking oil embargo that further deepened the crisis.
To add to the woes, the U.S. government shutdown, which is in its third week, began to weigh on investor sentiments as uncertainty over the resumption of normal federal operations dragged the shares and compounded market volatility. However, a better-than-expected start to the earnings season, with solid performance by leading banks, helped to revive some of the lost sheen. Amid the vagaries of the market, investors often seek to employ time-tested winning strategies to fetch sustained profits. One of the most successful game plans to beat the blues is to bet on momentum stocks, like Shopify Inc. SHOP, Robinhood Markets, Inc. HOOD and Credo Technology Group Holding Ltd CRDO when value or growth investing fails to generate the desired profits.
This approach primarily tends to follow the adage, “the trend is your friend.” At its core, momentum investing is “buying high and selling higher.” It is based on the idea that once a stock establishes a trend, it is more likely to continue in that direction because of the momentum that is already behind it. Momentum investing is a way to profit from the general human tendency to extrapolate current trends into the future. It is based on that gap in time before the mean reversion occurs, i.e., before prices become rational again.
Momentum strategies have been known to be alpha-generative over a long period and across market stages. Therefore, this strategy is quite tricky to implement, as detecting these trends is no child’s play. Here, we have created a strategy to help investors get in on these fast movers and rake in handsome gains. Our screen will help you benefit from long-term price momentum and a short-term pullback in price.
Percentage Change in Price (52 Weeks) = Top #50: This selects the top 50 stocks with the best percentage price change over the last 52 weeks. This parameter ensures we get the best stocks that have appreciated steadily over the past year.
Percentage Change in Price (1 Week) = Bottom #10: From the above 50 stocks, we then choose those that are also among the 10 worst performers over a short one-week period. This parameter picks the ones that have witnessed a short-term pullback in price.
Zacks Rank #1: Stocks sporting a Zacks Rank #1 (Strong Buy) have a proven history of outperformance irrespective of the market conditions. You can see the complete list of today’s Zacks #1 Rank stocks here.
Momentum Style Score of B or Better: A top Momentum Style Score knocks out a lot of the screening process, as it takes into account several factors that include volume change and performance relative to its peers. It indicates when the timing is best to grab a stock and take advantage of its momentum with the highest probability of success. Stocks with a Momentum Score of A or B, when combined with a Zacks Rank #1 or 2 (Buy), handily outperform other stocks.
Current Price greater than $5: The stocks must all be trading at a minimum of $5.
Market Capitalization = Top #3000: We have chosen stocks that are among the top 3000 in terms of market value to ensure the stability of price.
Average 20-Day Volume greater than 100,000: A substantial trading volume ensures that these stocks are easily tradable.
Here are three of the five stocks that made it through this screen:
Ottawa, Canada-based Shopify is a leading global commerce platform that helps in starting, scaling, marketing and running a business of any size. Its platform and services are engineered for simplicity and reliability, while delivering a better shopping experience for customers everywhere. Merchants use the company’s comprehensive, multi-channel commerce platform to run business across various sales channels, including web and mobile storefronts, physical retail locations, social media storefronts and marketplaces.
The stock has surged 90.8% in the past year but declined 6.1% in the past week. Shopify has a Momentum Score of A.
Headquartered in Menlo Park, CA, Robinhood Markets is a financial services firm offering trading services in crypto, stocks, options, exchange-traded funds, cash management, margin and securities lending and Robinhood Gold. The company aims to democratize finance through its commission-free trading model, which was launched in 2013, with no account minimums. The company serves in the United States, the United Kingdom and selected European Union jurisdictions through its apps and subsidiaries.
The stock has soared 398.1% in the past year but lost 11.1% in the past week. Robinhood Markets has a Momentum Score of A.
Based in Grand Cayman, the Cayman Islands, Credo provides various high-speed connectivity solutions for optical and electrical Ethernet and PCIe applications across the globe. It aims to redefine high-speed connectivity by delivering state-of-the-art solutions that enable sophisticated AI-driven applications. The company offers faster, reliable, energy-efficient and scalable solutions that support burgeoning AI, cloud computing and hyperscale network demands.
The stock has skyrocketed 255.3% in the past year but declined 11.7% in the past week. Credo has a Momentum Score of A.
You can get the rest of the stocks on this list by signing up now for your 2-week free trial to the Research Wizard and start using this screen in your trading. Further, you can also create your own strategies and test them first before taking the investment plunge.
The Research Wizard is a great place to begin. It’s easy to use. Everything is in plain language. And it’s very intuitive. Start your Research Wizard trial today. And the next time you read an economic report, open up the Research Wizard, plug your finds in, and see what gems come out.
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Disclosure: Officers, directors and/or employees of Zacks Investment Research may own or have sold short securities and/or hold long and/or short positions in options that are mentioned in this material. An affiliated investment advisory firm may own or have sold short securities and/or hold long and/or short positions in options that are mentioned in this material.
Disclosure: Performance information for Zacks’ portfolios and strategies are available at: https://www.zacks.com/performance.