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number cruncher

What are we looking at?

U.S. industrial stocks.

The screen

We limited our pool to the S&P 100 index.

To find the most positive, we looked at each stock's 40-week moving average (40wMA). This is the average closing price for the stock over a period of 40 weeks.

Charting the moving average week by week gives us a sense of investor's behaviour: Are they growing more (or less) enthusiastic about the company's outlook and are they more (or less) likely to purchase the stock?

Generally speaking, stocks that trade above their rising 40wMAs are the best candidates for investments; they are the ones that show a bullish pattern.

We identified the status of each stock's average (rising, falling or flat) in the adjoining table.

We chose this indicator because stocks tend to stay relatively close to their 40wMAs.

When stocks rise far above this average, investors often use this as an opportunity for profit taking, since this usually leads to a price correction toward the 40wMA.

Similarly, when stocks decline far below this average, investors can usually expect a recovery rally to follow toward the average, providing a selling opportunity.

More about Phases & Cycles

Phases & Cycles Inc. has been providing independent research for more than 25 years, using behaviour analysis. It publishes investment ideas for both the Canadian and U.S. equity markets. Its research reaches more than 1,000 users across North America and Europe.

What did we find?

There are a total of 14 industrial stocks in the S&P 100 index.

Five of these are above their rising 40wMAs:

General Dynamics, General Electric, Lockheed Martin, Raytheon and United Parcel Services. Of these stocks, General Electric and Raytheon are currently overbought and may have a minor pullback for a better entry level. Six of the industrial stocks are in a clear down-trend; these include Caterpillar, Emerson Electric, FedEx, Norfolk Southern, Union Pacific and United Technologies. Among these, Union Pacific is the most oversold stock and most likely to have a minor recovery rally for a better exit level.

The remaining three stocks: 3M, Boeing and Honeywell have flat 40wMAs; they are trading near their respective averages and have a neutral status.

Readers should consult a professional before making investment decisions.

A more detailed list, covering a larger pool of industrial stocks, is available by e-mailing info@phases-cycles.com.

Monica Rizk is the senior technical analyst and Ron Meisels is the president of Phases & Cycles Inc. (www.phases-cycles.com).  And he tweets at @Ronsbriefs.  They may hold shares in companies profiled.

U. S. industrial stocks