The stock market's recent volatility is providing investors with an opportunity to profit from momentum stocks that benefit from long-term uptrends and persistently high returns, according to Oppenheimer & Co. Inc. For more, see also: How to Profit From Market Volatility Using ETFs.)
In a note to clients, head of technical analysis Ari Wald singled out the iShares Momentum exchange-traded fund (ETF) (MTUM), which contains stocks like Apple Inc. (AAPL), Bank of America Corp. (BAC) and JPMorgan Chase & Co. (JPM), as being a good buy during times of "market weakness," CNBC reported. All three of these stocks outperformed the Standard & Poor's 500 index over the last week, according to Google Finance data.
Shares of Apple, the world's largest company by market capitalization, have risen roughly 4.9% in the last week and 7.9% from their recent low on February 9, additional Google Finance figures reveal. Bank of America stock has also enjoyed notable gains recently, climbing 2.4% during the past week and 7.6% from its recent low of $29.74 reached on February 8.
Major financial services firm JPMorgan Chase, whose shares are also included in the iShares Momentum ETF, rose 1.9% over the last week and 6.6% from its recent low, according to Google Finance. Stock of Visa Inc. (V) also posted a notable rebound from its local low, climbing 6.1% since hitting that point on Feb. 7.
Shares of manufacturer Boeing Co. (BA) and chipmaker Nvidia Corporation (NVDA) both rose more than 4% from their local lows, climbing 4.9% and 4.2% from that point, respectively. While the former company posted a modest loss over the last week, the latter rose roughly 5.5%.
Risks of Momentum Trading
While momentum trading can be highly lucrative, an example being the returns it produced in 2017, this practice can also result in significant losses, as noted in a recent Investopedia article. Momentum trading involves purchasing stocks that have already enjoyed notable gains. While this approach might help an investor take a long position on equities that could continue to rise, it could also result in purchasing stocks that are already overpriced. (For more, see also: Introduction to Momentum Trading.)