NEW YORK (TheStreet) -- You need discipline to track and trade hot and cold momentum stocks, to know when to hold them and when to fold them, as the old song goes.
It's not as complicated as it sounds, so here's a one-sentence tutorial: A momentum stock trades higher on technicals ignoring fundamentals staying above key moving averages as momentum measures become overbought.
My method is based upon weekly closes above the five-week modified moving average with a rising or overbought 12x3x3 weekly slow stochastic. In today's analysis I provide insight and guidelines based on numbers I crunch for eight technology stocks.
Since my last momentum stock story Netflix Zooms Past Tesla, Tesla Motors (TSLA) surged 31.2% while Netflix (NFLX) slowed with a gain of 3.6% since Feb. 7. Year-to-date Tesla leads the '2014 Momentum Race' with a gain of 62.7% vs. 21% for Netflix.
Amazon.com (AMZN) has decelerated to the back of the pack with decline of 9.2% so far this year after setting an all-time intraday high at $408.06 on Jan. 22. Apple (AAPL) set a 52-week intraday high at $575.14 on Dec. 5 then traded as low as $493.55 on Jan. 31 and YTD is down 6.2% just ahead of Amazon. My analysis suggests that Apple has a better chance of regaining momentum status compared to Amazon.
A detailed technical analysis chart about these stocks follows today's profiles and explains my number-crunching terms.
Apple ($526.24 vs. $561.02 on Dec. 31, down 6.2% YTD) will return to momentum status given a close week above its five-week modified moving average at $530.36 as the 12x3x3 weekly slow stochastic started to rise again last week. A daily close above its 50-day simple moving average at $537.36 enhances this possibility. My annual pivot at $517.05 has been a stabilizing magnet since the stock gapped below this key level on Jan. 28. Apple shares popped back above $517.05 on Feb. 7 and traded as high as $551.19 on Feb. 18. This important annual level was tested again last Wednesday and Thursday providing an entry opportunity. A reasonable objective for a momentum trade is for the stock to rally to its annual risky level at $586.06.
From my 'Crunching the Numbers' table note that Apple has a gain of 19.2% over the last 12 months and is above its 200-day SMA at $493.32, which is the downside risk given a trend below $517.05.
Amazon.com ($362.10 vs. $398.79 on Dec.31, down 9.2% YTD) has a more difficult task in returning to momentum status. The stock began 2014 trading back and forth around my quarter pivot at $402.56 where momentum traders could have booked profits. On Jan. 30 Amazon reported that they missed analysts' earnings estimates and the stock plunged to a 2014 low at $337.73 on Feb. 5. To return to momentum status Amazon needs to have a weekly close above its five-week MMA at $367.15 with its 12x3x3 weekly slow stochastic on the rise once again. Before this happens my suggested strategy is to enter a GTC limit order to buy weakness to my annual value level at $334.95.
From my table note that Amazon has a gain of 37% over the last 12 months and is above its 200-day SMA at $328.96.