SEA Limited price action in recent days

Higher returns by going long/short

The most common behavior in the winners of the current bull market is the fact that they tend to be have similar momentum characteristics. Momentum investing is a system of buying stocks that have an uptrend in price over the past term and selling the underperforming stocks at the same time.

A perfect example of this would be buying the SPDR Tech sector ETF (XLK) and selling the SPDR Banking sector ETF (KBE). The advantage of such strategy is that if you bet on the right “horse” on both long (momentum) and short (lagging) side, the returns would be exponentially larger than an individual long only strategy. Such that, year-to-date performance of long Tech/Short Banks strategy is above 55% with few drawdowns along the way.

View fullsize

XLK vs. KBE performance

So how to identify momentum stocks ?

How can retail investors easily identify momentum stocks that has been outperforming