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For Immediate Release
Screen of the Week of Zacks Investment Research:
Play the Momentum with These 4 Hot Stocks
In basketball, when a player hits a few shots in a row, he is said to have a “hot hand.” In finance, we call it “momentum.”
Momentum is basically the tendency of winning stocks (i.e. stocks that have outperformed the market in recent times) to keep winning and losing stocks to keep losing. It is based on the idea that once a stock establishes a trend, it is more likely to continue in that direction instead of moving against the drift.
At the core, momentum investing works on the principle of “Buy High, Sell Higher.”
Thus, this strategy calls for hitching a ride on an already fast-moving train, without fretting about valuations or growth prospects. But why does momentum strategy work?
There is a simple reason behind this. It works because we are humans!
There’s a whole laundry list of behavioral biases that most investors exhibit and these emotional responses and mistakes are the very reason for the momentum strategy to work. For instance, we all know of investors who are afraid to book losses and hence hold on to losing stocks for too long, hoping that they will spring back to their original prices. On the other hand, many investors sell their winners way too early.
Furthermore, investors initially tend to under-react to news, events or data releases. However, once things gain clarity, they tend to go with the flow and overreact, causing dramatic price reactions.
These behavioral problems extend trends, and thus open up huge opportunities for momentum players. So basically, it’s a way to profit from the general human tendency to extrapolate current trends into the future.
Momentum investing is based on that gap in time that exists before the mean reversion occurs, i.e. before prices become rational again.
Also, unlike other investment styles, momentum premium has stood the test of time, remaining remarkably robust and persistent ever since it was identified by financial academics in the 1990s. This is especially important as academics are of the opinion that once research on factor premiums (like size and value) becomes known to public, the investment world catches on and the premium gradually erodes.
Obviously, this strategy is quite tricky to implement, as detecting these trends is no child’s play. Momentum strategies have been known to be alpha-generative over long periods of time and across markets, and we have devised a strategy that will help investors get in on these trades and make handsome gains.
Our screen will help you take advantage of both long-term price momentum and a short-term pullback in price, which will reflect some profit-taking in the stock.
And that’s what we’re screening for today…
For the rest of this Screen of the Week article please visit Zacks.com at: https://www.zacks.com/stock/news/282776/play-the-momentum-with-these-4-hot-stocks
Get the remaining stocks on the list and start putting this and other ideas to the test. It can all be done with the Research Wizard stock picking and back testing software.
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.
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.
About Screen of the Week
Zacks.com created the first and best screening system on the web earning the distinction as the “#1 site for screening stocks” by Money Magazine. But powerful screening tools is just the start. That is why Zacks created the Screen of the Week to highlight profitable stock picking strategies that investors can actively use.
Strong Stocks that Should Be in the News
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Contact: Jim Giaquinto
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