The broader U.S. equity markets have witnessed significant volatility over the past few trading days as concerns regarding the Federal Reserve’s interest rate cuts took center stage amid stubborn inflation. However, the November reading of the personal consumption expenditures price index, which increased 2.4% year over year, offered some solace as it was a tad less than broad-based expectations. This helped defuse some of the bearishness and helped stocks recover from a volatile past week that witnessed the longest losing streak since the 1970s.

Although investors await a “Santa Claus” rally to end the year on a high, the markets have begun the holiday week on a muted note. Amid the uncertainty, investors often seek to employ time-tested winning strategies to fetch sustained profits. One of the most successful game plans to beat the blues is to bet on momentum stocks, like Carvana Co. CVNA, Marvell Technology, Inc. MRVL and Coinbase Global, Inc. COIN, when value or growth investing fails to generate the desired profits.

This approach primarily tends to follow the adage, “the trend is your friend.” At its core, momentum investing is “buying high and selling higher.” It is based on the idea that once a stock establishes a trend, it is more likely to continue in that direction because of the momentum that is already behind it. Momentum investing is a way to profit from the general human tendency to extrapolate current trends into the future. It is based on that gap in time before the mean reversion occurs, i.e., before prices become rational again.

Momentum strategies have been known to be alpha-generative over a long period and across market stages. So, this strategy is quite tricky to implement, as detecting these trends is no child’s play. Here, we have created a strategy to help investors get in on these fast movers and rake in handsome gains. Our screen will help you benefit from both long-term price momentum and a short-term pullback in price.

Screening Parameters for Momentum Anomaly Stocks