In Australia momentum investing is a popular style whereby technical analysts buy or sell stocks as they break above or below moving averages over specific time periods. These moving average ranges can include time periods anywhere from 20 minutes for algorithmic (computer driven) traders, to 5 days, 20 days, 100 days, or 200 days.
Some technical analysts believe that longer moving average levels like 50, 100, or 200 days can act as support or resistance levels for share prices as the investment community views them as technical benchmarks that signal what range a stock may trade between.
Some also believe that if an asset class such as a stock for example moves above a 200-day moving average then it may be in bubble territory to equal a sell signal. Whereas others believe if shares are trending above their medium-dated moving averages then they're in "an uptrend" which is a buy signal.
The scientist Isaac Newton famously lost nearly his entire personal fortune by chasing stock in the South Sea Company as it rose and rose before crashing down to earth and wiping out nearly his entire investment. Newton is unlikely to have been challenged by the arithmetic involved in calculating a moving average and his failure to spot a bubble goes to show why following technical analysis to make investment decisions can be a fool's game.
Still markets are forward looking and if stocks are at 52-week highs it suggests that the market loves their outlook and probably expects more gains ahead. So let's take a look at the following five.
ResMed Inc. (CHESS) (ASX: RMD) shares hit $9.60 this morning as the sleep treatment specialist based in San Diego continues to post strong revenue growth. It is also a beneficiary of the stronger U.S. dollar, which is helping send its shares to record highs.
National Australia Bank Ltd. (ASX: NAB) shares hit $32.58 this week as investors bid it up on the strength of its recent results and the prospect of higher base lending rates. The bank has also been restructuring itself, which suggests it may finally be able to produce decent long-term returns for investors.
NIB Holdings Limited (ASX: NHF) shares hit a record high of $5.45 today as it continues to win market share and deliver policyholder growth. It appears to be a well run business and given the tailwinds of the healthcare sector it retains a reasonable long-term outlook,
Worleyparsons Limited (ASX: WOR) shares have soared to record highs after it revealed that UAE-based engineering giant Dar Group has been interested in acquiring the business and now owns 13.35% of Worley's issued equity. This is good news for current shareholders, but I would not suggest buying at today's prices in anticipation of a takeover bid.
Codan Limited (ASX: CDA) is the metal detector business that has been on a roller coaster ride over the years but today its shares are at a multi-year high of $2.40. Sales of the company's commercial metal detector products appear to be taking off again perhaps in response to the global upturn in base metal prices. Codan though remains a risky proposition, although on conventional valuation metrics shares don't look expensive.
