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Guide to

Momentum Investing

Guide to Momentum Investing

Table of Contents

Introduction to Momentum Trading . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Incorporating Zacks into a Momentum Strategy . . . . . . . . . . . . . . . . . . . . . . . . 3

1. Identify: Find great stocks. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

Articles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Zacks Rank Buys . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Zacks #1 Rank Top Performers . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Zacks Industry Rank Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Profit from the Pros . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 Timely Buys (Zacks Elite) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 Portfolios and Stock Lists. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 Zacks #1 Rank List (Premium) . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 Zacks Industry Rank List (Premium) . . . . . . . . . . . . . . . . . . . . . . 6 Profit Tracks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 Tools . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 Predefined Screener . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 Custom Screener . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 Research Wizard . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 Surprise Trader. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 Zacks/Schaeffer's Options Trader . . . . . . . . . . . . . . . . . . . . . . . . 11

2. Analyze: Research the trend in earnings estimate revisions and fundamentals . . . 12

Earnings Estimate Revisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 Magnitude . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 Upside. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 Surprise . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 Interactive Charting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14-15 Zacks Rank in Industry (Premium) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

3. Manage: Determine which stocks to hold, and more importantly which stocks to sell . . . . 16

Portfolio Tracker - Free Version . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 Portfolio Tracker - Premium Version . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 Portfolio Tracker - Applicable Views . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 Other Educational Resources. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 Zacks Rank Guide: Harness the Power of Earnings Estimate Revisions . . 18 Momentum Investing Page . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 Other Investing Style Pages. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 Zacks Education . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 Contact Us . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18

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Guide to Momentum Investing

Introduction to Momentum Trading

Most investors have heard of the "buy low; sell high" discipline typically advocated by value investors. Momentum investors take a different approach, preferring to "buy high; sell higher". In other words, momentum investors believe that stocks with strong price performance should continue to trend higher. There are a number of fundamental and technical characteristics momentum investors seek when selecting stocks. Fundamental characteristics include consistent earnings surprises, changes in earnings estimates, or raised guidance. Technical parameters are also important, with promising candidates trading at or near their 52-week highs on stronger-than-average volume, or stocks experiencing a consistent uptrend reinforced by breakouts or price surges. The Zacks Rank is the best friend to folks who rely on technical analysis and momentum because it can tip them off before most other systems. Rather than simply looking for price trends, the Zacks Rank is about "cause and effect". The cause of the move is positive revisions in earnings estimates. This upward shift in earnings estimates prompts more and more investors to take an interest in the company with the effect being that the shares in the company start on a bull run. Volume increases, as does the stock price. Simply relying on technical analysis often doesn't alert investors until after the move has already begun, costing active traders opportunities to maximize profits. Conversely, by focusing on Earnings Estimate Revisions, the Zacks Rank alerts can identify stocks that are likely to move upward in the future - before the breakout has occurred! In other words, the Zacks Rank helps traders get in ahead of the action. Equally important, the Zacks Rank can tell investors whether the stock should continue to move higher (further positive revisions to earnings estimates) or if it is at risk of declining in price (negative revisions in earnings estimates). Using earnings estimate revisions and other catalysts to select momentum stocks is easy. Momentum investors should concentrate on Zacks #1 Rank stocks with the intention of selling any stock that drops to Zacks Rank #2 or lower. It is our hope that the Zacks Guide to Momentum Investing will help your efforts to "buy high" and "sell higher" by utilizing the various products and services we have to offer.

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Guide to Momentum Investing

Incorporating Zacks into a Momentum Strategy

In 1979, Len Zacks published a groundbreaking article in the Financial Analysts Journal entitled: "EPS Forecasts - Accuracy Is Not Enough." The article's premise outlined how earnings estimates are the most powerful force impacting stock prices. From this seminal work was born Zacks Investment Research and the Zacks Rank. INSIDER TIP:

To fully understand how to harness the power of earnings estimates, it is strongly recommended that you read the free Zacks Rank Guide, if you have not already done so.

Changes in earnings estimates are a powerful fundamental catalyst that can extend a stocks trend, thereby furthering Momentum. Incorporating earnings estimate revisions is easy. Momentum investors simply need to follow the I AM Method:

Identify ­ Find great stocks Analyze ­ Research the trend in earnings estimate revisions and fundamentals Manage ­ Determine which stocks to hold, and more importantly which stocks to sell

By using this three-step process, you will be able to proudly say, "I AM a successful Momentum investor." This is a comprehensive guide designed to highlight many of the resources available to momentum investors. For more information about Momentum investing, Please visit http://www.zacks.com/education/momentum.

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Guide to Momentum Investing

1. Identify

Find great stocks

Zacks provides a wide selection of commentary, portfolios and tools to help you identify great stocks.

ARTICLES

Zacks Rank Buys

Every day on Zacks.com, we feature four Zacks #1 Rank (Strong Buy) or Zacks #2 Rank (Buy) stocks that are poised to outperform the market. The featured Momentum stocks are found solely on the Zacks #1 Rank List. Active traders are encouraged to focus solely on Zacks #1 Rank stocks, since these have the most powerful upward earnings estimate revisions. WHERE TO FIND IT:

The Zacks Rank Buy articles are located in the upper right hand corner of the Zacks.com home page.

INSIDER TIP:

Subscribe to our free RSS feed and get the Momentum Zacks Rank Buy article delivered to you every morning.

Zacks #1 Rank Top Performers

Every Monday, we highlight the best performing stocks on the Zacks #1 Rank List. Very often, these are stocks that have posted double-digit returns over the past seven days. Discover these hot stocks are and the reasons behind the impressive price performance. WHERE TO FIND IT:

Zacks #1 Rank Top Performers is located on the right side of the Zacks.com home page, just below the Zacks Rank Buy articles.

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Guide to Momentum Investing

Zacks Industry Rank Analysis

Every Wednesday, we spotlight specific industries benefiting from positive revisions in earnings estimates. You'll discover trends affecting various industries and the best stocks within those industries. The Zacks Industry Rank is calculated by averaging the Zacks Rank for all covered companies within a given industry. It is a quantitative indicator designed to cover periods of one to three months. It helps investors get a feel for those industries that are experiencing improving earnings prospects. Each week, a few of these attractive industries, and the companies within them, are spotlighted in the Zacks Industry Rank Analysis article (found on our homepage under Zacks Industry Analysis). Learn why this group of stocks has performed well and why they are projected to continue doing so over the short-term. WHERE TO FIND IT:

Zacks Industry Rank Analysis is located on the left side of the Zacks.com home page in the Zacks Industry Analysis Section.

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Guide to Momentum Investing

Profit from the Pros

This free e-mail newsletter offers continuous coverage of the industries and the stocks poised to outperform the market. Subscribe today at http://at.zacks.com/?id=2338.

Timely Buys (Zacks Elite)

The Zacks Timely Buys list is comprised of stocks that are on the Zacks Focus List and have a Zacks Rank = 1. ( Zacks #1 Rank means the stock is likely to outperform the market over the next one to three months). When you add together the long-term nature of the Focus List with the timeliness of a Zacks #1 Rank stock, then you truly have the makings of one of the most exclusive stock lists on Wall Street. This portfolio continually crushes the performance of the S&P 500 as can be seen on the Model Portfolios page. WHERE TO FIND IT:

Zacks Elite subscribers can access the Timely Buys List by going to the Zacks Elite web site www.zackselite.com and clicking on the Focus List tab.

INSIDER TIP: Zacks Elite subscribers have full access to both Zacks Premium and Zacks Elite.

Portfolios and Stock Lists

Zacks #1 Rank List (Premium)

27% Since 1988, Zacks #1 Rank stocks have generated a 30% return, making the list a great place to start looking for ideas. And with a click of a mouse button the list can be narrowed by sector. WHERE TO FIND IT:

The Zacks #1 Rank List, and related resources, is located in the Zacks Rank Section. Just click on "Zacks Research" from the top of any page and then click on Zacks Rank.

Zacks Industry Rank List (Premium)

The Zacks Industry Rank leverages the power of earnings estimate revisions to identify industries with improving earnings prospects, which is the surest bait to lure investor interest. And with a click of a mouse button, you can find the best stocks within those industries. WHERE TO FIND IT:

The Zacks Industry Rank List, and related resources, is located in the Zacks Rank Section. Just click on "Zacks Research" from the top of any page and then click on Zacks Rank.

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Guide to Momentum Investing

Profit Tracks

Profit Tracks are successful stock-picking strategies that have crushed the market since 2001, each tailored to meet various investing styles. On Zacks.com, we have created these nine unique screens to offer investors great strategies to potentially outperform the market in the years ahead. The Recent Price Strength and Upgrades and Revisions profit tracks should directly appeal to Momentum investors. WHERE TO FIND IT:

The Profit Tracks home page is located in the Screening section of Zacks.com. Just click on "Screening" from the top navigation and then click on Profit Tracks.

INSIDER TIP: Each month three Profit Track strategies are made available for free.

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Guide to Momentum Investing

TOOLS

Predefined Screens

Predefined Screens are perfect for investors who are not sure how to filter for winning stocks. These are pre-built stock screening strategies that many investors use on a regular basis to locate potential winners. The Top (%) Price Movers Stocks Screen should grab the attention of Momentum investors. To run this screen, simply decide what time period to reference (1-week, 4-week, 12-week, or Year-To-Date) and click on the corresponding Top (%) Price Movers Screen and then click on the "Run Screen" button. WHERE TO FIND IT:

Click on Screening from the top of any page and then click on Predefined Screens from the left-hand column.

Custom Screener

If you want even more control, then check out our Custom Screener. This screener includes over 140 items from the proprietary Zacks stock database including popular Momentum metrics such as pricing information, pricing changes and earnings and estimate revisions. WHERE TO FIND IT:

Click on Screening from the top of any page and then click on Custom Screener from the left-hand column.

INSIDER TIP: Subscribers to Zacks Premium are able to add the Zacks Rank to their screens, proving the ability to not only screen with many more filters, but also generate more profitable strategies--membership has its privileges!

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Guide to Momentum Investing

Research Wizard

Want to know how profitable your screens really are? Research Wizard, with its backtesting capabilities, can tell you. In addition, this powerful program features more than 650 different screening criteria, expanded company reports and the ability to evaluate stocks within your portfolio. Momentum investors will also appreciate the price and price changes selection, which includes the ability to screen for percentage changes in price, relative price strength, stocks trading at or near 52-week highs, and the list goes on. WHERE TO FIND IT:

Click on Screening from the top of any page and then click on Research Wizard to learn more about this great program.

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Guide to Momentum Investing

Surprise Trader

Zacks Surprise Trader allows active traders to profit from earnings surprises. This strategy turns a series of small gains on short-term trades into market-beating annual profits. It is amazingly accurate at saying which stocks will rise in the weeks following an earnings announcement and which won't. The key is to know which stocks will continue to rise in the weeks following the announcement. Our analysts have identified the rare 2% of stocks with a "high probability for extended price appreciation." For the rest of us, that means that stock price will likely go up for a few weeks after the earnings surprise. That's plenty of time to get in and ride the trend. Proving the momentum truism "Buy high; Sell higher." Actually, these elite 2% of stocks identified by the PRI have generated an annual average return of 56.6% from 6/29/01 to 2/28/06 and it comes with an iron clad money-back performance guarantee!

WHERE TO FIND IT:

Just click on Zacks Research at the top of any page and then click on the Zacks Surprise Trader on this page or directly visit the Surprise Trader site at http://www.zacks.com/surprisetrader.

Zacks/Schaeffer's Options Trader

This trading alert service starts with the powerful Zacks Rank stock selection system. We then add Bernie Schaeffer's proven option trading expertise to time your trades for maximum profits. With data going back to 1988, we know conclusively that earnings estimate revisions are a powerful predictor of a stock's movement in a one to three month time frame. By screening for Zacks #1 Rank stocks, you can get in early on stocks exhibiting stellar growth rates which can propel their price even higher. In fact, the Zacks Rank also works in reverse. By screening for stocks with a Zacks Rank of #5, you can find stocks that are showing early signs of weakness. The bottom line is that these short-term moves - both up and down - can provide plenty of profit-generating opportunities for option traders. WHERE TO FIND IT:

Just click on Zacks Research at the top of any page and then click on the Options tab at the top of the page.

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Guide to Momentum Investing

2. Analyze

Research the trend in earnings estimate revisions and fundamentals

Once potential investments are identified, the next step is to analyze them and make sure that they are truly "buy higher" Momentum stocks. Zacks offers all of the data Momentum investors need to analyze stocks.

Earnings Estimate Revisions

Earnings estimate revisions are the most powerful force impacting stock prices. Stocks with rising earnings estimates have materially outperformed the S&P 500 year after year. Similarly, stocks with falling earnings estimates have underperformed the S&P 500 year after year. Thus, investors can use earnings estimate revisions to reap great rewards. Zacks.com provides earnings estimate data for nearly 4,200 companies. WHERE TO FIND IT:

Just type a company's ticker into the quote box located in the upper left-hand corner of any page and hit the Go button. The quote page will appear. Near the top of the quote page, click the drop-down arrow and select Estimates under Company Reports.

Investors should pay attention to four factors: Agreement, Magnitude, Upside and Surprise. All four of these factors are detailed on the estimates page.

Agreement is the proportion of covering brokerage analysts that have revised their

forecasts over the past seven and 30 days. The greater the proportion of analysts who believe earnings will be better than previously thought, the more likely the stock will outperform the broader markets over the next one to three months.

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Guide to Momentum Investing

Magnitude is the actual change in estimates over the past 60 days. Positive revisions are good, multiple and large revisions are even better.

Upside is the difference between the most accurate consensus and the consensus estimate.

Surprise is whether the company beat, met or missed earnings estimates over the

past four quarters. Frequent positive surprises can reinforce a stocks upward trend as investors gain confidence and look to capitalize on the company's good fortune.

INSIDER TIP:

The Zacks Rank can quickly tell you which stocks are the most attractive based on these four factors. Full access to the Zacks Rank comes with Zacks Premium. Membership has its advantages.

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Guide to Momentum Investing

Interactive Charting

Zacks Interactive Java Charts is a valuable tool for analyzing technical indicators and price momentum. Besides displaying price performance from a variety of different periods and formats, our interactive charts allow you to incorporate a number of technical indicators including: moving averages, MACD, relative strength, among many others. You can even draw trend lines and customize your analysis. Zacks Interactive Charts are a must for the momentum investor. To begin using the interactive charts, type a stock symbol in the Quote Box, click Go, and then click on the Charts tab. Click on the Settings Button and you will notice a link to Indicators, which will allow you to apply the different technical studies mentioned above. You can also customize the indicators by clicking the Configure selection.

Zacks Java Charts also allow the user to do comparative analysis. Simply click the Comparative selection under the Settings button and type in a peer symbol or select a US or Canadian market index.

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Guide to Momentum Investing

Drawing trendlines couldn't be easier with the interactive charts. Simply place the cursor arrow where you'd like the trendline to begin, left click, use your mouse to extend the system generated trendline to where you'd like the trend to end and then left click again.

In addition to interactive charting, Zacks offers Comparative, Price & Consensus, 12 Month EPS, Price & EPS Surprise, and Broker Recommendations charting abilities. Simply click on the corresponding selection in the Charts section to begin using these features.

WHERE TO FIND IT:

Put any symbol in the quote box on the upper left portion of the homepage. Click Go and then click on Charts to start analyzing your company.

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Guide to Momentum Investing

Zacks Rank in Industry (Premium)

The key to investment success is to buy the best stocks in the best industries. The Zacks Rank in Industry shows how a company's Zacks Rank compares to its peers. Momentum investors should seek out stocks with a Zacks #1 Rank in industries ranked 1 to 80. WHERE TO FIND IT:

Just type a company's ticker into the quote box located in the upper left-hand corner of any page and hit the Go button. Under the Zacks Premium Research section you will find a link to the Zacks Rank in Industry table.

INSIDER TIP: You can also get to

the Zacks Rank in Industry by going to the Industry Rank List.

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Guide to Momentum Investing

3. Manage

Determine which stocks to hold, and more importantly which stocks to sell.

When you complete the analysis of your stocks in Step 2, then you are ready to buy these shares in your brokerage account. Your broker will provide you with an online portfolio tracker to keep tabs on your stocks. However, your broker won't provide you with the most important aspect of managing your portfolio: knowing which stocks to continue holding and which to sell. And that is exactly why you need to set up your portfolio on Zacks.com to truly manage your stocks and maximize profits.

Portfolio Tracker--Free Version

The Free Version contains the basic information you need to monitor your portfolio including: · · · · Daily price changes Changes in consensus earning estimates Earning surprises Changes in Average Broker Recommendations (ABR)

Portfolio Tracker--Premium Version

The Zacks Premium Portfolio Tracker contains everything that is included with the Free Version plus: · · · · · · Changes in the Zacks Rank ­ a key indicator for short-term trading Changes in the Zacks Recommendation ­ a key indicator for long-term investing Detailed earnings estimate revisions Detailed average brokerage recommendation changes Access to Zacks Equity Research Reports Access to Research Digest Reports

WHERE TO FIND IT:

Click on Portfolio from the top of any page and click on Go to Portfolio Tracker or the portfolio name, if you have already set a portfolio with Zacks.com. If you have not set up a portfolio, click here to start maximizing your profits today.

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Guide to Momentum Investing

Setting up a portfolio takes only a couple of minutes. Enter the name of the new portfolio, and a list of ticker symbols separated by a comma. Once your Momentum portfolio has been created, you will enjoy the premier benefit of the Portfolio Tracker--its comprehensive and timely updates via a single daily email before the market even opens.

Portfolio Tracker--Applicable Views

In addition to the daily emails that the Portfolio Tracker generates, you are also able to utilize multiple portfolio views that offer unique insight into your holdings. These views include: Price, Value, Price Action, Sector Industry, Brokerage Recommendations, EPS and Fundamental. It is highly recommended that you give each view a chance and pick those that suit your needs best. The Price Action view should directly appeal to Momentum investors.

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Guide to Momentum Investing

Other Educational Resources

In addition to the many powerful tools and resources already mentioned in the guide, Zacks has even more educational material to help you proclaim "I AM a successful investor".

Zacks Rank Guide: Harness the Power of Earnings Estimate Revisions

This free guide is prerequisite reading for any investor who wants to use Zacks.com to become a more successful investor. If you have not read this guide, or you need a refresher, then now is the time to get started. Read online at www.zacks.com/help/zrank.php.

Momentum Investing Page:

All of our educational resources and articles geared towards Momentum investors can be found here http://www.zacks.com/education/momentum.

Other Investing Style Pages:

Zacks has resources for all investors. Here is how you can explore the resources Zacks has available for other investors: · Value · Growth & Income · Aggressive Growth

Zacks Education

All of our educational resources can be found on our Education Home page. We are always adding new articles and guides to further our goal to help you become a more successful investor.

Contact us:

Toll Free 1 (800) 767-3771, est. 9339 Outside the U.S. call (312) 265-9339 (customer support hours are 9am to 6pm EST) Email: [email protected] Mail: Zacks Investment Research Attn: Zacks.com 111 N. Canal Street, Suite 1101 Chicago, IL 60606

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