Alpesh's Momentum/Value Filter
Medium risk - 2-3 month typical holding period - target 20% return
This is a data mining filter that I use to identify stocks that are both strong on price momentum and well supported on valuation grounds. The idea is that because they are well valued, the momentum should not peter out.
It filters this list down looking for the most undervalued stocks - those priced fairly in proportion to their earnings and projected growth and that offer fairly good dividend yield.
This filter should be used when the market is bullish. My aim is to find stocks that will outperform the market.
Now these moves may play out over a couple of months or a couple of days. However they may also have already run out of steam. With this filter, unlike my Value/Growth one, I look at the chart of each stock using my Momentum Radar to decide whether to get in.
The ideal Momentum/Value stock is rising in a relatively straight line. With low volatility, the risk of being stopped out is lower.
Example A: Good choice.
Price has started to rise steadily as has the MACD. It's a smooth upward price trend and the rise of the MACD is also smooth and upward. Ideally I want the Stochastic to be less overbought but this is fine, and I want the MACD to be rising from oversold part of the chart (below the 0 line) but again this is still a good example. Remember my buy point is:
- MACD starting to move sideways to upward smoothly (not necessarily crossing the signal line) and ideally moving out from oversold territory.
- Stochastic already rising
- Price making a new high relative to the previous day is the intraday buy point.
Example B: Okay choice.
Steadily rising price and MACD; MACD high but some legs left in stochastic and RSI.
Example C: Less attractive stock.
Price has levelled out and may have made its move. The MACD has just turned down and the stochastic and RSI are both in overbought territory.
Example D: Less attractive stock.
Price has moved up sharply but indicators suggest that this move may have gone as far as it can for the time being.
Of course, it always pays to check company news for contract losses, resignations, scandal, detrimental legislation, etc. To check the latest news for a stock, press the \ key from the List, Graph or Details screen. Press \ again to return to where you were.
Also, check the share price. My filter automatically excludes stocks under 30p but anything under 100p has to be considered as having a riskier profile.