Ron Meisels is the Director of Research and Monica Rizk is the senior Technical Analyst for Phases & Cycles Inc. (www.phases-cycles.com). They may hold shares in companies profiled.
What are we looking at?
Canadian material stocks based on four technical indicators.
The screen
We limited our pool to the S&P/TSX composite index. We examined each stock's moving average, which is the average closing price over a recent period, usually the past 10 weeks (10wMA) and the past 40 weeks (40wMA).
Looking at the moving average week by week gives us a sense of investors' behaviour: Are they growing more (or less) enthusiastic about the company's outlook, and are they more (or less) likely to purchase the stock?
We started by selecting only those that are above both their 40wMAs and 10wMAs. We then narrowed our search by choosing only the ones with positive stochastic and on-balance volume (OBV) indicators.
The stochastic indicator measures investors' activity. It looks at today's range (defined as today's high minus today's low) and compares it with the average range of the previous five days.
A positive signal is generated whenever today's range is higher than the previous five-days' average. This suggests that buyers are willing to pay more for the stock than they did during the last five days and shows a positive trend.
On-balance volume (OBV) is used to detect momentum. Volume should keep pace with price; each $1 rise in price should be accompanied by a commensurate rise in volume. A rise in price on lesser volume would suggest a negative signal for the stock.
What did we find?
We found eight stocks that satisfy all four criteria, suggesting that these are the most favourable material stocks on the S&P/TSX at this time.
We also found eight that had three positive readings, indicating the potential of at least a short-term move upward. In the adjoining table we summarize our findings.