What are we looking at?
Attractive Canadian stocks.
The screen
We limited our pool to the S&P/TSX 60 index.
To find the most promising, 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 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 a bullish pattern. Accordingly, we listed the positive-looking 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 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, suggesting a change in trend, investors can usually expect a recovery rally to follow toward the average, which also provides a selling opportunity.
More about Phases & Cycles
Phases & Cycles Inc. has been providing independent research for more than 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 24 stocks within the S&P/TSX 60 index that are currently trading above their rising 40wMAs. Among the ones that are closest to this average and show other positive characteristics are Gildan Activewear Inc., Rogers Communications Inc. and Telus Corp. These stocks are in a long-term up-trend and have recently pulled back to their averages and now appear ready to resume the up-trend.
Among the most overbought stocks – stocks that are far above their 40wMAs – are Alimentation Couche-Tard Inc., Valeant Pharmaceuticals International Inc., Metro Inc. and Brookfield Asset Management Inc. These stocks will require a considerable pullback before they become good candidates for investment.
Readers should consult a professional before making investment decisions.
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.