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Momentum Ideas: 6 Rallies Boosted by Hedge Funds and Short Seller Activity

By: Kapitall
Posted: 11/17/2011 6:37:00 PM
Referenced Stocks: AVAV;MCF;MFW;MMYT;NXTM;TFM

(Written by Alexander Crawford, list compiled by Eben Esterhuizen, CFA. Data from 11/14. Institutional data sourced from Fidelity, short data sourced from Yahoo! Finance, technical data sourced from Finviz.)

Technical analysis – which mostly focuses on past price and volume data – is very different from the traditional methods of fundamental stock analysis, but it can offer an interesting perspective of where stocks are and where they may be going.

Momentum

One of the most popular technical concepts is momentum – the idea that recent trading trends for a stock may persist as more investors follow suit. For instance, a stock that is rallying above its 20-day, 50-day, and 200-day moving averages is clearly surrounded by positive investor sentiment, and that idea may resound with investors for some time to come.

An especially bullish technical momentum indicator is the “golden cross,” in which a stock’s 50-day moving average crosses above its 200-day moving average, indicating recent upside momentum. Stocks exhibiting this may be giving a signal that there’s more upside to come.

Smart Money Investors

Looking beyond charts and graphs, it’s helpful to find supporting bullish evidence from other sources. One source is the buying trends of institutional investors like hedge fund managers and mutual fund managers. Stocks seeing strong net buying from institutions are getting a noteworthy vote of confidence.

Shares shorted is also a great data point to consider. When short sellers focus in on a stock, they’re indicating a bearish outlook. Conversely, fewer shares shorted is a bullish development.

The Screen

To illustrate these ideas, we ran a screen on stocks exhibiting the golden cross for those with smart money buying interest. The list below includes stocks that have seen significant net institutional purchases over the current quarter and a significant decrease in shares shorted month-over-month.

Do you think these stocks deserve such widespread optimism?

Use this list as a starting point for your own analysis.

Analyze These Ideas (Tools Will Open In A New Window)

1. Access a thorough description of all companies mentioned
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List sorted alphabetically.

1. AeroVironment, Inc. (AVAV): Designs, develops, produces, and supports unmanned aircraft systems (UAS), and efficient energy systems for various industries and governmental agencies. SMA50 at 30.25 vs. SMA200 at 30.05 (current price at 32.99). Net institutional purchases in the current quarter at 1.2M shares, which represents about 7.27% of the company's float of 16.51M shares. Shares shorted have decreased from 1.86M to 1.64M over the last month, a decrease which represents about 1.33% of the company's float of 16.51M shares.

2. Contango Oil & Gas Co. (MCF): Explores, develops, produces, and acquires natural gas and oil properties primarily offshore in the Gulf of Mexico. SMA50 at 59.88 vs. SMA200 at 59.85 (current price at 64.55). Net institutional purchases in the current quarter at 710.4K shares, which represents about 5.43% of the company's float of 13.08M shares. Shares shorted have decreased from 1.39M to 1.22M over the last month, a decrease which represents about 1.3% of the company's float of 13.08M shares.

3. M&F Worldwide Corp. (MFW): Provides checks and related products, direct marketing services, and customized business and home office products in the United States and internationally. SMA50 at 24.42 vs. SMA200 at 24.06 (current price at 24.89). Net institutional purchases in the current quarter at 1.4M shares, which represents about 59.83% of the company's float of 2.34M shares. Shares shorted have decreased from 666.32K to 588.36K over the last month, a decrease which represents about 3.33% of the company's float of 2.34M shares.

4. MakeMyTrip Limited (MMYT): Provides travel products and solutions in India and the United States. SMA50 at 25.79 vs. SMA200 at 25.37 (current price at 26.37). Net institutional purchases in the current quarter at 4.5M shares, which represents about 53.51% of the company's float of 8.41M shares. Shares shorted have decreased from 2.31M to 1.83M over the last month, a decrease which represents about 5.71% of the company's float of 8.41M shares.

5. Nxstage Medical, Inc. (NXTM): Engages in the development, manufacture, and marketing of products for the treatment of kidney failure, fluid overload, and related blood treatments and procedures in the United States. SMA50 at 20.61 vs. SMA200 at 20.39 (current price at 19.51). Net institutional purchases in the current quarter at 2.4M shares, which represents about 5.35% of the company's float of 44.87M shares. Shares shorted have decreased from 6.93M to 6.08M over the last month, a decrease which represents about 1.89% of the company's float of 44.87M shares.

6. The Fresh Market, Inc. (TFM): Operates as a specialty grocery retailer. SMA50 at 39.41 vs. SMA200 at 38.44 (current price at 43.45). Net institutional purchases in the current quarter at 10.5M shares, which represents about 34.79% of the company's float of 30.18M shares. Shares shorted have decreased from 5.94M to 5.61M over the last month, a decrease which represents about 1.09% of the company's float of 30.18M shares.