What are we looking at?
Attractive U.S. industrial stocks.
The screen
We limited our pool to the S&P 100 index.
We looked at each stock's 40-week moving average (40wMA). This is the average closing price over a period of 40 weeks. Charting 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? Generally speaking, stocks that trade above their rising 40wMAs are the best candidates for investments; they are the ones that show bullish investor behaviour. We listed the U.S. industrial stocks and identified the status and level of each stock's 40wMA in the adjoining table.
We chose this indicator because stocks tend to stay relatively close to their 40wMA. When a stock rises 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. When a stock declines far below this average, it suggests a negative condition, and although a recovery rally may follow toward the average, it would only provide a selling opportunity.
More about Phases & Cycles
Phases & Cycles Inc. has been providing independent research for over 24 years, using behaviour analysis. We publish investment ideas for both the Canadian and U.S. equity markets. Our research reaches more than 1,000 users across North America and Europe.
What did we find?
There are 14 industrial stocks within the S&P 100 index. Nine of these are currently trading above their rising 40wMAs, have recently pulled back to their averages and now appear ready to resume their upward trend. FedEx Corp., General Dynamics Corp., Honeywell International Inc., Lockheed Martin Corp. and United Technologies Corp. look particularly bullish.
The stocks that are trading below their 40wMAs (a negative number in the "per cent to average" column) are not suited for investment at this time. Caterpillar Inc. and Emerson Electric Co. have recently rallied to their falling 40wMAs and will likely return toward their previous lows. Norfolk Southern Corp. and Union Pacific Corp. could have a minor recovery rally, but are the weakest in the group.
Readers should consult a professional before making investment decisions.
A more detailed list, covering a larger pool of industrial stocks, can be requested by e-mailing info@phases-cycles.com.
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.