Shares in Sylvania Platinum (LON:SLP) have led a strong move away from the market average in recent weeks. On a relative price strength basis, the price is up by 41.9% against the market over the past three months. The last close price was 62p.
The move comes after a volatile spell for the UK equities. Markets collapsed in March on concerns about the unfolding Covid-19 crisis. And while index prices have rallied in recent weeks - taking a lead from US markets - there are still grave concerns about the near-term outlook for corporate earnings.
The upside for Sylvania Platinum is that investor optimism is translating into positive price momentum, which is regarded as a leading predictor of future performance...
Trading the trend
Research by some of the investment industry's most respected strategists shows that relative strength can be one of the most consistently useful pointers to growth.
Price momentum is heavily influenced by psychology, with investors under-reacting and subsequently over-reacting to company news, driving prices higher over time.
The catch is that investor sentiment is prone to wild swings, which makes momentum risky when used on its own. Combining it with other factors, like attractive valuation, high quality and low volatility, can help reduce that risk.
Overall, the upward trend in the share price of Sylvania Platinum over the past three months is a promising sign. But while the stock has been outperforming recently, relying on momentum in volatile markets can be hazardous.
What does this mean for potential investors?
Shares in Sylvania Platinum have outperformed the market over the past three months - but momentum on its own is no guarantee of future returns.
To get a better idea about whether this trend will continue, it's worth doing some investigation yourself.
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.