The broader U.S. equity markets have witnessed significant volatility over the past few trading days. Solid economic data raised concerns regarding the Federal Reserve’s proposed interest rate cuts this year. The latest data from the Institute for Supply Management revealed that the non-manufacturing purchasing managers index (PMI) increased to 54.1 in December from 52.1 in November amid strong demand. This dragged the market lower yesterday after it witnessed back-to-back gains in the two preceding trading days.

However, apprehensions related to the policy pledges from the incoming Trump administration, including higher tariffs on imported goods and mass deportations, cast doubts over inflation stifling growth. 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, InterDigital, Inc. IDCC and Axon Enterprise, Inc. AXON, 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