Shares in Ashmore (LON:ASHM) have been in an uptrend in recent months, and the question now for investors is whether that price strength will continue.
Finding stocks with the potential to break-out as their popularity grows is a strategy used by some of the world’s most successful traders.
Knowing exactly what drives relative strength in share prices can help you find profitable momentum trades. I’m going to use Ashmore as an example of how this can work.
How has the Ashmore share price performed?
Ashmore is a balanced, large cap in the Investment Management & Fund Operators industry and it has a market cap of £3,147m.
In terms of relative price strength against the FTSE All-Share index, shares in Ashmore are up by 27.7% over six months and up by 24.6% over one year.
Relative strength is a useful tool in the armoury of technical traders and investors. It’s an instant measure of how a stock has performed in comparison with a benchmark.
And while there are no certainties about which way a stock will move next, research shows that price trends often persist.
Studies by leading experts on momentum show that stocks with the strongest price strengthtend to keep up the pace for anywhere up to one year. A big part of the reason for this is down to investor behaviour. In particular, it's caused by:
- Under-reaction - prices are slow to move up because investors are hesitant to bid prices higher in stocks that have already been on a strong run.
- Delayed over-reaction - investors chasing rising prices attract the attention of other investors, who follow them into those trades, pushing prices higher and higher.
In both cases, stocks with positive price momentum often see their prices trend higher.
Next steps
Ashmore is currently among the stocks with the strongest six-month and one-year relative price strength in the market. A look at its StockReport could offer more insight into what’s driving the momentum in its share price - and whether that might continue.
Disclaimer: These articles are provided for information purposes only. The content is not intended to be a personal recommendation. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser. The author has no position in the stocks mentioned, unless otherwise stated.