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For Immediate Release

Chicago, IL – April 7, 2020 – Stocks in this week’s article are DaVita Inc. DVA, EchoStar Corp. SATS and PennyMac Financial Services, Inc. PFSI.

3 Momentum Anomaly Stocks to Consider Among Coronavirus Woes

The coronavirus pandemonium has compelled governments across the globe to consider various stimulus packages to reinvigorate the economy as well as impose stiff restrictions on travel and public gatherings to minimize loses by containing the spread of the disease. Yet, the economic fallout is being severely felt with several indicators declining sharply. The world economy will likely go into recession due to the pandemic, with two-third of the population living in developing countries facing unprecedented economic damage.

The March jobs report surprised economists as it showed that the U.S. economy lost 701,000 jobs last month compared with 100,000 expected. It reflected that the early impact of the coronavirus pandemic was much worse than they anticipated, signaling further damage to the economy. With large parts of the United States now under lockdown, millions of people working in retail, restaurants, travel, hotels and leisure industries have lost their jobs and the losses are spreading. Oil and gas companies are laying off workers as oil prices collapse and engineering firms are cutting staff as the airline industry grinds to a halt.

Last Tuesday, U.S. President Donald Trump warned of a “very painful” two weeks as the country battles with a coronavirus surge. The Fed is trying to protect the financial system and insulate the broader economy where short-term pain could turn into long-term suffering if credit crunches prevent companies from obtaining the cash they need to operate, forcing them to lay off workers, delay payments to vendors and shut down factories.

Although a coronavirus-triggered downturn appears inevitable, policymakers’ timely response can help determine how deep it is, how long it lasts and how quickly the economy bounces back from it. As the world gears up to develop a treatment for this deadly disease, economic stimulus packages and an integrated global approach to fight the menace could work wonders. In the meantime, let us all unite against this invisible enemy and advocate social distancing efforts to help in containing the disease.

With this in mind, reacting emotionally to volatile trends can cause more damage to a portfolio’s return than a downturn. When value or growth investing fails to fetch sustained profits, one should explore another time-tested winning strategy that simply bets on the frontrunner stocks. This is known as momentum investing.

At the core, momentum investing is buying high, selling higher. It is based on the idea that once a stock establishes a trend, it is likely to continue in that direction. There’s a whole list of behavioral biases that most investors exhibit. For instance, there are investors who are anxious about booking losses and hence hold on to losing stocks for too long, hopeful of a rebound in prices.

On the other hand, a few investors sell their winners way too early. Momentum investing is one of the best strategies to avoid making such mistakes. So, basically, it’s a way to profit from the general human tendency to extrapolate current trends into the future. Momentum investing is, thus, based on that gap in time, which exists before the mean reversion occurs i.e. before prices become rational again.

Here, we have created a strategy that will help investors get in on these fast movers when there is a short-term pullback in price, and rake in handsome gains.

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