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(Eric Gevaert/Getty Images/iStockphoto)
(Eric Gevaert/Getty Images/iStockphoto)

NUMBER CRUNCHER

What to look for in volatile stocks Add to ...

Mr. Bowman is a portfolio manager at Hamilton-based Wickham Investment Counsel Inc., an adviser to high-net-worth clients. mike@mikebowmangroup.com

What are we looking for?

Stocks which would be suitable for traders, short sellers or option investors.

The screen

My colleague Rob Belanger and I started with North American companies larger than $1-billion in market capitalization and sorted them from the largest to the smallest. All of our companies had to be option eligible.

Beta is the measure of volatility of a security in comparison to the market as a whole. Only companies with a beta of two or more were included in our screen – meaning these stocks are expected to move twice the amount of the whole market, either up or down. We are looking for volatile stocks.

The relative strength index (RSI) is a technical momentum indicator that compares the magnitude of recent gains to recent losses in an attempt to determine overbought and oversold conditions. Stocks are considered overbought if the RSI approaches 70, which may mean the stock is a good candidate for a pullback. Oversold conditions exist as the RSI approaches 30, indicating there could be a potential move higher.

The short interest ratio is a sentiment indicator that is used by traders to identify the prevailing sentiment the market has for a particular security. The higher the short interest ratio the more the bearish the sentiment. It shows how long it would take traders, in days, based on average daily volumes, to cover (buy) their short positions if the price of the stock begins to move higher.

We are also showing the share price change in the last 20 days.

What did we find?

Canadian Solar is a leading manufacturer of solar power systems with customers in more than 70 countries. The share price has dropped 20.4 per cent in that past 20 days and the RSI of 31.8 indicates the share price is oversold and could be due for a rebound higher. With a short interest ratio of only 1.06, bearish sentiment is very minor.

Neurocrine Biosciences focuses on developing pharmaceuticals for neurological- and endocrine-based diseases. The stock has dropped more than any company on our screen, but with an RSI of 32.9 and a low short interest ratio, it may also be due for a rebound.

Be sure to conduct more research or contact an investment professional before investing in any stocks shown here.

North American volatility screen

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