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Technical analysis: Tracking stocks with rising momentum

Special to The Globe and Mail

(Getty Images/iStockphoto)

Ron Meisels is director of research and Monica Rizk is the senior technical analyst for Phases & Cycles Inc. (www.phases-cycles.com).

What are we looking for?

In today’s screen we look for stocks that have long-term upside potential. We will look at four technical indicators to select the ones that meet this objective.

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The screen

We limited our pool to the S&P/TSX Top 60 constituents and initially selected only those above their rising 40-week moving averages (40wMAs) since this is the primary tool of technical analysis. We then examined each stock and selected those that are above their 10-week moving averages (10wMAs), have positive moving average convergence-divergence (MCAD) and on balance volume (OBV) indicators.

A moving average is calculated by adding the closing price of the security for a number of time periods and then dividing this total by the same number of time periods. The beginning of an uptrend is signalled when the rising short-term average (10wMA) crosses above the longer-term average (40wMA).

The MACD is a trend-following momentum indicator that shows the relationship between these two moving averages.

OBV is used to detect momentum, as it relates volume to price change. OBV shows whether volume is keeping pace with the rise or decline of the selected security.

What did we find?

We found 22 stocks that are trading above both their 40wMAs and 10wMAs but only 12 that have a positive MACD and OBV. Most of these stocks are in the financial or consumer discretionary sectors. In the adjoining table we summarize our findings.

 

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