By definition, momentum is the amount of motion an object has.
In investing, we look at momentum in terms of the direction of stock prices.
A stock price that is consistently moving up has upward momentum. A stock has downward momentum when its price continues to fall.
We like to focus on upward stock momentum here at Money & Markets. It’s part of our philosophy to “buy high … sell higher.”
It’s why momentum plays such an important role in chief investment strategist Adam O’Dell’s six-factor Green Zone Ratings system.
I’ll tell you why.
Pro tip No. 1: If you are curious about how to use Green Zone Ratings to find out how 8,000+ stocks rate in our system, we’ve got you covered. Click here to watch my brand-new tutorial, and look up some of your favorite stocks today!
Stock Momentum in Practice
When you look at a stock performance chart, it’s easy to see if a stock is moving up, down or sideways.
We can take any stock and judge its momentum.
Take Celsius Holdings Inc. (Nasdaq: CELH) for example:
CELH’s Stock Momentum Shift
As you can see in its chart, Celsius Holdings had very strong upward momentum from April 2020 to January 2021.
It was sustained over a long period of time.
Green Zone Fortunes co-editor Charles Sizemore wrote about Celsius Holdings in December 2020.
Looking back at the time Charles wrote the story, Adam’s Green Zone Rating system rated Celsius a 96 on momentum.
Going back to the stock chart above, you can see that CELH’s stock momentum trended downward after the price reached a high of around $69 per share.
It dropped to around $43 per share in late March 2021.
The stock regained some momentum, and the price moved back up to around $60 per share in early April. It has pared back slightly since then.
That downward stock momentum dragged Celsius’ momentum rating down a bit. But it’s still in the green at 78.
And the stock still gained 50% since Charles wrote about it in December.
Why an Uptrend Is So Important
Some investors don’t want to buy a stock in an uptrend because they think they’ve already missed out on a chance for big gains.
But that’s not true. Stocks that are already in a strong upward trend tend to keep moving up.
In July 2020, Celsius Holdings was one of our 10 hotlist stocks.
Pro tip No. 2: To find out more about our weekly hotlist, click here.
It rated a 96 on momentum as the stock price moved from $4.26 in January to more than $13 in July.
Many investors probably thought the steam ran out of Celsius and passed on this opportunity.
They were wrong. Celsius kept going.
The fitness beverage maker hit $69 per share — a 415% jump from when it made our watch list.
Even with the recent pullback, Celsius is still up 315% from the time it was on our hotlist.
It proves that the idea of buying high and selling higher works.
The bottom line: Stock momentum paints a pretty strong picture, but it doesn’t work by itself.
That’s why there are six factors to our Green Zone Rating system.
All of them play a role in making up the total rating of a stock.
I’m going to tell you more about those soon.
Until then …
Research Analyst, Money & Markets
Matt Clark is the research analyst for Money & Markets. He’s the host of our podcast, The Bull & The Bear, as well as the Marijuana Market Update. Before joining the team, he spent 25 years as an investigative journalist and editor — covering everything from politics to business.