Outperforming Nasdaq-listed stocks using quantitative and technical analysis.
The Nasdaq Composite Index is up over 14 per cent this year, followed by the S&P 500 index, which is up 7.5 per cent and the Dow Jones Industrial Average, up 3 per cent. This week we built a stock strategy using equities in the Nasdaq composite that have a strong potential to trend higher in a U.S. index that has been outperforming year-to-date.
We started by screening for U.S. stocks with a market capitalization of at least $5-billion. This will limit our search to the largest and most stable companies in the Nasdaq.
Next, we searched for stocks demonstrating price momentum across two time horizons: Four-week price performance must be 5 per cent or higher and year-to-date performance must be positive.
In order to find stocks that have upward price momentum with money flowing into them, we added a filter to find stocks that are indicating two-week trading volume that is above their 90-day average.
To continue with the momentum theme, we screened for stocks with a bullish momentum indicator. The momentum indicator is an tool used in technical analysis to help determine the strength of a stock’s recent price rise or decline.
Finally, we screened for the top-ranked stocks using Trading Central’s Quantamental rating method - a proprietary stock-ranking methodology which covers more than 50,000 stocks worldwide. This metric ranks stocks on a scale of one to 10, with 10 being the most bullish and one being the most bearish. The ranking uses a combination of valuation, growth, quality, price momentum and income as key metrics when ranking a company.
For informational purposes, we have also included one-year price performance, the recent stock price, price/earnings, and dividend yield.
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.
Topping our list is intelligent-sensor and power-management company On Semiconductor Corp (ON). The stock recently broke above strong resistance at the US$77 price level and has been trending higher ever since. One-year price performance is the highest on our list at 24.6 per cent. A bullish momentum signal was confirmed on Jan. 27 on a weekly price bar chart with a 4.17 out of five rating, which is very strong.
Microchip Technology Inc.,(MCHP) a provider of smart, connected and secure embedded-control products, has the highest TC Quantamental rating on our list at 7.47 out of 10. That is of great interest to us as our research has shown U.S. equities with a rating of seven or higher produced a 17.5-per-cent annualized return using a five-year historical period with monthly rebalancing, compared with 7.6 per cent for the S&P 500 index. The stock has recently broken above resistance at the US$80 price level and continues to trend higher. A bullish momentum signal was also confirmed on Jan. 27 on a weekly price bar chart.
Tesla Inc. (TSLA) has the largest market cap on our list at US$636-billion. The stock has the highest 10-day vs. 90-day trading volume increase on our list at 1.72 times the average, which is no surprise as the stock has the best four-week price performance on our list at an impressive 63.4 per cent. A bullish momentum technical signal was confirmed on Feb. 3, which was identified on a weekly price bar chart.
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.