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Mr. Bowman is a portfolio manager at Hamilton-based Wickham Investment Counsel Inc., an adviser to high net worth clients. michael@wickhaminvestments.com
What are we looking for?
U.S. stocks that are showing strong upward momentum.
The screen
My colleague Rob Belanger and I started with U.S. companies greater than $1-billion in market capitalization.
Momentum is defined as the rate of acceleration of a security's price or volume. The idea of momentum investing is that the price of a security is more likely to keep moving in the same direction than to change direction. The strategy relies on short term movement in a stock's price, rather than the fundamental value of a company.
We are showing the stock prices of last week, Monday to Friday, and you can see the prices of each company increased every day. This action reflects the short term up-trend of the market price.
Moving averages also measure momentum, and show the average price of a security over a certain period of time. The 200-day moving average reflects the longer term trend, and the 50-day moving average reflects the medium term trend of the share price. We are looking for stock prices trading above the 50-day, and also above the 200-day averages, and the 50-day average has to be higher than the 200-day average.
The 5/20 volume percentage change is the difference between the average daily volume of the past five days divided by the average daily volume of the past 20 days, and expressed as a per cent figure. A positive number shows that volume has increased over the past five days, and companies had to show a minimum 20 per cent change to be included in our screen.
What did we find?
All of the companies on our screen are showing strong upward momentum over the short, medium and longer term.
Twenty-eight per cent of the companies are in the restaurant or food industry: International Flavour and Fragrances; Dunkin Brands; Domino's Pizza; Cracker Barrel; Texas Roadhouse; Bob Evans Farms; and Sonic Corp.
The existence of these momentum indicators does not, alone, justify buying a stock. Investors should contact a qualified investment professional, or do further research.