April 28th, 2008
I search for momentum. I look for market momentum, for industry group momentum and for momentum in individual stocks. I began writing here about my Market Timing Indicator (MTI), my tool for monitoring market momentum on February 6 and the tool stood up well in protecting me from dumping my stocks when the market and the economy started looking really bad this winter (because the MTI had already signaled a market exit back on December 28) and prevented a premature re-entry (it is close to but hasn’t yet issued an all-clear signal).
I look for momentum in industry groups but not necessarily the leading groups today (oil&gas-U.S. exploration and producers, farm machinery and chemicals, steel producers). I look for the industry groups that might be the leaders not too far down the road and have written about them (see April 26) and I look for leading stocks within those up and coming industry groups.
But, in the end, I look for stocks with upward momentum. Stocks towards which it looks as if the herd is stampeding, stocks moving up and have a good chance of continuing to move up. To wittle down the universe of 7000+ candidates I first look in three possible areas: new highs (in declining important of all-time highs, new 4-year highs, new 12-month highs), 1-3 year old IPOs and companies reborn at the beginning of a new lifecycle.
Several stocks have appeared on both the new 4-year and new 12-month high lists with charts with compelling charts (click on symbol for chart; note that charts have different timeframes):
- EMN (Eastman Chemical)
- ORB (Orbital Science)
- BJ (BJ’s Wholesale)
- ARO (Aeropostale)
- HCN (Health Care REIT)
- UNF (Unifirst)
- CRK (Comstock Resources)
- UHS (Universal Health Services)
- IPHS (Innophos Holdings)
It’s a long list but one that will expand much further if and when the market successfully moves up back over the 180-day moving average. If you’re conservative, you might want to put these stocks on a watchlist and wait for that market confirmation; if you’re more speculative, you probably want to watch the market through the action of the stocks in your portfolio.