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Chasing profitable entry points in momentum patterns can be a tough task considering all the institutional tricks that traditionally move volatile markets. A stock such as Nokia (NYSE:NOK) is an ideal product for institutional brokers and long/short hedge funds to make money via arbitrage. NOK stock was one of the original meme stocks during the January explosion of 2021.

Many brokers will gun the market through rumormongering and have their hedge fund pals pump and dump to falsify momentum patterns, causing the market to swing in their direction and leave retail investors with little chance of achieving short-term returns.

There are, however, exceptions to what I've just mentioned; you could most certainly achieve alpha if you as an investor can spot a justified momentum pattern with low latency market-moving news supplementing your decision-making process.

Having spotted a few notions, I believe that Nokia stock is ticking both of these boxes and could reach previous heights during 2021's meme stock frenzy.

Baltic Deal

Earlier this week, Nokia Corporation announced an extension of its 5G supply deal with Tele2. The agreement will see Nokia deliver equipment from its ReefShark system to facilitate Tele2's nationwide radio system. The operating cycle is set to commence once Tele2 has secured enough off-takes on its low and high band frequencies and will last indefinitely. 

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The Baltic region is a lucrative prospect for 5G service providers as it's among the frontrunners in Europe when it comes to innovation and ICT solutions. As an identifier of the potential at hand, the Baltic Sea zone has one of the highest broadband subscriptions to population ratios globally, with the likes of Sweden reaching 71.1% in 2020.

This deal is a company-specific event that probably won't be enough to support Nokia's fortunes for the long term, but it certainly holds enough substance for the stock to form a substantial momentum pattern during the early stages of this year.

Momentum & Valuation of NOK Stock

There are two key indicators that I look at when trying to identify a momentum pattern. The first is the relative strength index (RSI), which examines the magnitude of buy orders versus sell-orders over a specific period. The second metric I enjoy using is moving averages, which determines how the stock price stacks up against its short to long-term averages.

Nokia's RSI of 54.24 is still in the mid-range territory and well below the overbought bound of 70.00, which means that many investors haven't taken note of the stock's potential and that a momentum pattern could follow considering the stock's currently trading above its 10-, 50-, 100-, and 200-day moving averages.

Furthermore, Nokia stock is seemingly undervalued based on its income and cash flow statements. According to Nokia's sector relative price-to-sales and price-to-cash-flow ratios, the stock is undervalued by 65.4% and 55.02% respectively. Nokia's P/E ratio also trades below the sector average by 47.58%, meaning that the market is yet to price-in the stock's recent earnings per share growth.

Drawing a conclusion on the quantitative side of the argument, one could say that the stars are aligned for Nokia stock to prosper during the early stages of this year as the current momentum pattern is well justified by the stock's valuation metrics. I wouldn't be surprised if the meme crowd's long-awaited price surge of Nokia stock would come to fruition soon.

What Now for NOK Stock?

I don't want investors to become overly optimistic and think that this stock could be the next AMC (NYSE:AMC) or GME (NYSE:GME) millionaire maker, but I do believe that Nokia is a solid stock that is in the process of forming a momentum pattern with absolute magnitude, and if the broader market takes note of it we could see a rapid increase in the stock's price during the first quarter of 2022.

On the date of publication, Steven Booyens did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Steve Booyens co-founded Pearl Gray Equity and Research in 2020 and has been responsible for equity research and PR ever since. Before founding the firm, Steve spent time working in various finance roles in London and South Africa, and his articles are published on various reputable web pages such as Seeking Alpha, Benzinga, Gurufocus, and Yahoo Finance. Steve's content for InvestorPlace includes stock recommendations, with occasional articles on crowdfunding, cryptocurrency, and ESG.

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