While Insider Monkey is not necessarily an avid advocate of technical analysis, we will have a look at the hedge fund sentiment towards five stocks that have been gaining momentum in the past several weeks. Precisely, our team will lay out a list of five stocks seeing their relative strength index (RSI) rise in the past two trading weeks that fell out of favor with the hedge funds monitored by our team.
The RSI, considered one of the most popular and useful technical indicators, is designed on the basis of the speed and direction of a stock’s price movement. We will now give a brief overview of how the indicator is computed so that one can fully comprehend what it means and how it can be used. Let’s assume that one wants to calculate the 14-day RSI and that the stock in question went up on nine days and closed in the red on five days. The absolute gains, the difference between a stock’s closing price on a given day and the closing price on the previous day, on each of those nine days are added up and divided by 14 in order to calculate the average gains. Correspondingly, the absolute losses on each of the five losing days are added up and divided by 14 in order to calculate the average losses. And the ratio between these two values is called relative strength (RS). Finally, the RS indicator is normalized so that the value of the indicator would fall in the range of zero to 100. With that in mind, let’s have a look at five stocks with rising 14-day RSI that lost appeal among the hedge funds followed by Insider Monkey during the first quarter of 2016.
At Insider Monkey, we track around 770 hedge funds and institutional investors. Through extensive backtests, we have determined that imitating some of the stocks that these investors are collectively bullish on can help retail investors generate double digits of alpha per year. The key is to focus on the small-cap picks of these funds, which are usually less followed by the broader market and allow for larger price inefficiencies (see more details).
#5. Civitas Solutions Inc. (NYSE:CIVI)
– Hedge funds with long positions as of March 31: 7
– Value of hedge funds’ holdings as of March 31: $20.12 Million
– RSI: 22.15
Civitas Solutions Inc. (NYSE:CIVI) fell out of favor with the hedge funds followed by Insider Monkey during the first quarter of 2016, as the number of funds invested in the company dropped to seven from 11 quarter-over-quarter. However, the overall value of those hedge funds’ equity investments in the company fell by 36% quarter-on-quarter to $20.12 million, mainly due to a 39% drop in the value of Civitas shares. The provider of home- and community-based health and human services has seen its market value plummet by 23% since the beginning of 2016 despite the stock being up 38% in the past three months. The company’s consolidated gross revenue for the three months of 2016 was $349.09 million, up from $338.87 million recorded a year ago. The increase was mainly driven by a series of acquisitions closed during the quarter. Ken Griffin’s Citadel Advisors LLC owns 136,301 shares of Civitas Solutions Inc. (NYSE:CIVI) as of March 31.
The next two pages of this article will discuss the hedge fund sentiment towards four other stocks with rising RSI.