MOST TIPPED SMALL CAPS 2020: How it Started, How it's Going
This is a famous Japanese Choux pastry dessert. It’s like an éclair with a creamy custard filling and a crunchy almond topping. It sounds delicious doesn’t it! The first time I had it, it was perfectly baked.
For the next 2 weekends in a row I went back to get the same quality but unfortunately both times it was a bit over baked. Still delicious but not the same as the first experience. Past performance is not always an indicator of future results. In this case, especially when it came to the baker’s skills.
The readers of Livewire.com chose the following small cap stocks for 2020 most likely based on past performance and fundamentals.
10 Most Tipped Small Caps For 2020
In January 2020, the total returns for each stock by the end of 2019 were quite impressive. As traders we want to be able to identify the best trending stocks using technical indicators and price. Each of these stocks will be analysed using the Guppy Multiple Moving Average (GMMA) trend indicator.
SHORTCUT TO GMMA
For those unfamiliar with the GMMA, the following are 3 basics to get started on reading trends on a chart.
The GMMA utilises 2 groups of multiple moving averages. The blue lines are the moving averages of the short-term group representing traders and the red lines are the long-term group representing long-term investors. When the blue group is above the red group there is generally an uptrend. When the blue group is below the red group there is generally a downtrend. If either of these groups compress it means an agreement on price and the potential for a trend change or continuation. After compression, we often see an expansion and separation of the moving average lines. When the lines begin to separate, we see the beginnings of a potential trend breakout. A good example is at the right side of the chart, Figure 1, where we see the circled compression expand into an upward movement of the lines with a wider separation. Widely separated moving averages show strength in the prevailing trend.
Now that we’re ready to read the GMMA, let’s go through the list of 10 stocks in alphabetical order. We begin with ‘How it Started’ by looking at the chart for the year leading up to January 2020 then see ‘How it’s going’ this year leading into early November 2020.
In the chart of AD8, Figure 2, there is compression at the beginning of 2019 indicating agreement in price turning into a general uptrend during the year leading up to January 2020. Widely spaced moving average lines in both groups showed strong support from both traders and investors.
In February/March, the COVID crash is reflected on most of these charts. The blue lines of the short-term group were beneath the red lines of the long term group for most of this year indicating a downtrend. The last few months, Figure 2.1, has seen the blue lines pass up and sit above the red lines indicating an uptrend in place.
For just over half the year in 2019, Figure 3.1, the trend of APX was up before the blue lines passed down through the red lines showing a change to a downtrend then compression leading up to January 2020.
From January 2020, the COVID market crash happened then an uptrend emerges with widely separated moving average lines indicating trend strength. As we head into November 2020, the lines of the short term group have compressed showing an agreement on price. The trend may resume again or the trend may reverse depending on the breakout direction.
A flatline chart for AVH in 2019 to January 2020, Figure 4. Livewire readers probably picked this stock based on fundamentals. Avita Therapeutics produces spray on skin for treating burns victims which does sound more exciting than a bank.
This stock was not affected by the COVID market crash. Price was basically crawling across the chart close to zero with nowhere else for price to go. Around July price spiked up and this was the start of a fairly strong uptrend as you can see from the widely separated moving average lines. More recently the short-term group of lines have started to compress and head downwards. There is a risk of the trend reversing if the blue lines fall through the red lines and sit beneath.
The chart of EML, Figure 5, started with a compression on the left side, an agreement on price with the moving average lines gradually expanding. During 2019, a definite uptrend developed where the blue lines were above the red lines. Widely separated moving averages in both the short term and long term groups showed strong support for the uptrend.
The price of EML suffered a huge downfall during the COVID market crash starting from a high of 5.70 to a low of 1.58. During this year, it hasn’t shown a clear uptrend. As you can see at the right side of the chart, Figure 5.1, the lines are fairly compressed in both the blue short-term group and the red long-term group. Once the lines expand out from compression we will have a better signal as to the likely direction price will trend.
The chart of EOS, Figure 6, is a similar story to the last chart. Initial compression in early 2019 followed by the development of an uptrend as the blue lines and the red lines emerge from compression. The moving average lines expand then widen showing good trend strength.
A COVID market crash then no obvious trend leading into November 2020 as both groups have compressed moving averages showing a general agreement in price.
For a good part of 2019 the moving averages were compressed in both groups before an uptrend started to take place with the blue lines of the short term group emerging above the red lines of the long term group. The moving average lines of both groups are narrowly separated so the strength of the trend is moderate.
The moving average lines became more widely separated as the strength in the trend increased just before the COVID market crash. After recovery a definite uptrend emerges and the wide separation of the short-term group as well as the long-term group showed strength in the uptrend. More recently the blue lines of the short-term group have passed down through the red lines of the long-term group. A change to the downside has occurred.
The chart of NAN, Figure 9, started with a compression before a nice strongly supported uptrend emerged in 2019. In the month of January 2020, the short-term group lines have compressed showing an agreement in price. The next breakout may be the next leg in the uptrend.
Price does breakout to the upside before plunging in the COVID market crash. After recovery, there is another attempt for an uptrend but the blue lines cross down through the red lines and a downtrend was in place. A recent spike in November may see the trend reverse but we need to see the blue lines of the short-term group back above the red lines of the long-term group.
A good uptrend for most of 2019 was seen on the chart of NEA, Figure 10, before the moving average lines of the short-term group pass down through the red lines of the long-term group. A down trend is in place with the blue lines beneath the red lines. There is compression of both groups as an agreement on price is reached going into January 2020.
A further breakout occurred to the downside. The wide separation of both groups indicated a strong downtrend leading into the COVID market crash. Recovery occurred as the blue lines passed back up above the red lines. The last couple of months have seen compression in the blue lines of the short-term group. A breakout from the compressions will determine the direction of the next trend.
There was a good uptrend going into January 2020 on the chart of PAR, Figure 11. The blue lines of the short-term group were above the red lines and the wide separation showed strength in the uptrend.
Another leg emerges in the uptrend of PAR before crashing. At the very right side of the chart the blue lines and the red lines are compressed showing an agreement in price so there is no trend at the moment. Notice the blue lines of the short-term group are beginning to expand slightly. This has the potential for further development.
PBH was only listed in June 2019 so there only a few months of data on this chart. The blue lines are above the red lines in the order of an uptrend and separation of the lines showed some strength in the trend.
The uptrend ended on the PBH chart, Figure 12.1, when the market crashed. On recovery, the blue lines of the short-term group moved above the red lines of the long-term group. A long spike in August occurred and the uptrend continued. The widely spaced moving averages shows strong support for this uptrend from both the short term and the long term groups.
Only 2 out of the 10 stocks on the list are currently showing an uptrend in the short-term. They are Audinate (AD8), the first chart analysed and Pointsbet (PBH), the last chart analysed. As for the remainder of the 8 stocks, in the short-term there is no uptrend.
The table above, Figure 13, shows the results if you had employed a buy and hold strategy. These are the returns this year to the beginning of September just after reporting season. If you had bought every single tipped small cap stock you would be making an average return of 26.39%. Better than money in the bank as they say but nowhere near the returns at the end of 2019. It is preferable to buy the stocks going up and avoid the stocks going down. This is where technical analysis makes a difference for traders. The stock market crash earlier this year from the impact of COVID 19 derailed many well laid out plans. If you were to continue to watch these stocks, employing a trend indicator helps you decide when to stay out or when to buy in.
Most tipped stock lists are a good starting point for potential stock trades but remember trends change during the course of one year. Do your research and apply your preferred indicators to determine the trending stocks to trade.