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While fundamentals play a key role when evaluating popular value stocks with a long term potential, technical analysis sometimes becomes the key to understand momentum of small-cap stocks where fundamentals are still at the developing/ nascent phase or yet to support the overall scenario. In one of our previous articles, we have explained what a technical analysis/ momentum is and how it is relevant for stock picking. Now, we will further take a look at some more examples with specific momentum indicators.
WAM Capital Ltd (ASX:WAM)
Wilson Asset Management (WAM) Capital Ltd is a global asset management company having a decent gross assetsâ base. Its investment portfolio has reflected strong performance since inception with 16.4% returns (as at December 2018) while in the past one year the returns have been in the negative zone. As at March 08, 2019, the stock has witnessed a decent momentum as reflected by TRIX indicator. TRIX indicator is a kind of a hybrid indicator in the sense that it is made of moving averages which depict the trend and rate of change of those moving averages, in turn depicting the momentum. When the TRIX line is above the 0 value, the trend is typically considered to be positive and vice versa. Whereas the variation or change in the TRIX line indicates the momentum. As observed from the daily chart, the momentum indicator came above 0 level in early March 2019, and indicated a trend change on the positive side. As the TRIX line has been going straight up, the momentum was seen to be complementing the trend. The first signal of downtrend is understood with the turning of TRIX line towards the downside, indicating the momentum to be fading slightly. As of now, with TRIX indicator on the upside and volatility slightly downwards, the probability of further upside has been expected by the market. However, the trend is yet to be watched out for in view of many other indicators and fundamental scenario. As at March 08, 2019, no price movement was noted for WAM.
Volatility and Momentum Scenario for WAM (Source: Thomson Reuters)
WAM Research Limited (ASX:WAX)
WAX is another asset management company from the WAM group, and it provides exposure to a diverse portfolio to its clients while focussing on dividends and higher total returns. To understand the momentum of WAX, we looked at the Awesome Oscillator (AO) which is very famous for gauging the current momentum. Whenever bars are forming on the upside, the momentum is termed to be positive. Conversely, lower bars show a negative momentum. From 17th January, the momentum of the price has been continuously on the negative side (all the bars were formed on the downside) and the price fell from A$1.37 to a low of A$1.31. However, at the end of February 2019, after almost one and half month the first bar was formed on the upside, which was the first buy signal as the trend became positive. The price opened at A$1.4 and made a high of A$1.43 as of March 08, 2019. The stock is still trying to move as per the momentum while it edged lower by 0.7% on March 08, 2019. In the last one month, the stock has been up about 7%, as at March 07, 2019 while its half year result for period ending December 2018 has been on a soft side.
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