When engaging in short-term investing or trading, following the trend can often be a lucrative strategy, as the adage “the trend is your friend” suggests. This method relies on riding the momentum of a stock, aiming to capitalize on the ongoing direction of its price movement. However, as many traders have experienced, trends can sometimes reverse abruptly, resulting in potential losses. Therefore, confirming the sustainability of a trend becomes crucial to maximizing the chances of profitable outcomes.
Ensuring Sustainability of Trends
To ensure a trend has the stamina to persist, it’s essential to consider underlying factors such as solid fundamentals and positive earnings estimate revisions. These elements help support continued momentum in the stock’s price. A practical tool for traders looking to identify such stocks is the “Recent Price Strength” screen. This strategy helps shortlist stocks that not only show strong recent uptrends but also possess fundamental strengths to sustain these gains.
Case Study: Allegheny Technologies (ATI)
Allegheny Technologies is a prime example of a stock that fits into the trend investing strategy. Here’s why ATI stands out:
- Short-term Performance: ATI has demonstrated impressive short-term growth, with a 37.1% increase over 12 weeks and a 14.1% rise over the past four weeks. Such performance indicates strong investor confidence and a continued willingness to invest at higher prices.
- Position in Market: Currently trading at 90.9% of its 52-week high-low range, ATI shows potential for breaking out, suggesting that it might not only sustain its current trend but could also reach new highs.
Conclusion
While trend following is a powerful strategy, its success hinges on the ability to identify stocks like ATI that not only show current momentum but also have the fundamental backing to continue their upward trajectory.
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