What are we looking for?
U.S-listed equities that are attractive from a trend-following and technical analysis perspective.
The S&P 500 has dipped 5.7 per cent since posting a 52-week high back on the July 27. Some U.S. stocks have started to outperform the broad market, continuing their upward trend and showing strength in a volatile market. We were curious to find out which stocks are continuing to trade near 52-week highs on strong price momentum and technical strength, metrics of interest to traders that adhere to a trend-following strategy closely followed by our analyst team at Trading Central.
We started by screening for U.S. stocks with a market capitalization of at least US$1-billion. Stocks with market capitalizations above US$1-billion generally offer the benefits of greater financial stability, established market presence, access to resources, and potentially lower volatility compared with smaller-cap stocks.
A trend-following methodology favours stocks making higher highs and higher lows. We filtered for stocks that are trading within 10 days of their most recent 52-week high. Trend-following traders prefer stocks near 52-week highs to ride established upward trends and capitalize on positive momentum.
Continuing on the momentum trend, we filtered for stocks that are indicating a TC Quantamental momentum factor rating of at least 70 out of 100. The momentum factor refers to the tendency of winning stocks to continue performing well in the near term.
We will filter for stocks that have a positive return over the past five days, in order to filter out stocks that are underperforming in the current market rebound.
Finally, we added two technical analysis features with a focus on classic pattern breakouts to the upside and bullish trend-following indicators.
We have also included year-to-date YTD and one-year returns for informational purposes.
More about Trading Central
Trading Central is a global leader in financial market research and investment analytics for retail online brokers and institutions. Its product suite provides actionable trading ideas based on technical and fundamental research covering stocks, exchange-traded funds, indexes, forex, options and commodities. Strategy Builder, our stock screener is available through leading retail brokers in Canada and worldwide.
What we found
Topping our list is Nvidia Corp. NVDA-Q, a leading designer of graphics processors, which jumped to a record high Thursday after reporting robust second-quarter earnings. The company issued third-quarter revenue guidance that also beat expectations, fuelled by growing demand for its microchips that are used in artificial-intelligence applications. Nvidia has the highest TC momentum factor rating of 93 out of 100. The stock confirmed a technical-breakout pattern to the upside – meaning it moved above a range in which it had been trading for some time – on Aug. 21. That signalled the continuation of the uptrend.
VTEX VTEX-N provides e-commerce software through a cloud-based platform. The company reached a new 52-week high after the stock was upgraded to Buy from Neutral at UBS. The stock has the highest five-day price return on our list at 23.9 per cent and has a strong TC momentum factor rating of 84 out of 100.
CymaBay Therapeutics Inc. CBAY-Q, a clinical-stage biopharmaceutical company focused on developing therapies for patients with liver and other chronic diseases, has the best one-year price performance on our list at an impressive 243.8 per cent. The stock also has a very strong TC momentum factor rating of 84 out of 100.
Using a stop-loss is important when employing a trend-following strategy because it helps manage risk by automatically triggering a sell order when a trade moves against the anticipated trend, limiting potential losses and preserving capital.
Trading Central Strategy Builder provides a back-testing capability to evaluate how well an investing strategy would have worked in the past. Using a five-year historical period with quarterly rebalancing, the screen described has a 15-per-cent annualized total return compared with 9 per cent for the S&P500 100 index.
The investment ideas presented here are for information only. They do not constitute advice or a recommendation by Trading Central in respect of the investment in financial instruments. Investors should conduct further research before investing.
Gary Christie is head of North American research at Trading Central in Ottawa.