What are we looking at?
U.S. information technology stocks with long-term upside potential.
The screen
We limited our pool to the S&P 100 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. 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 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. 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 13 IT stocks in the S&P 100 Index, nine of which have a "rising" 40wMA and all of these nine are trading above their respective 40wMAs.
Among these, six (Apple Inc., Intel Corp., MasterCard Inc., Microsoft Corp., Texas Instruments Inc. and Visa Inc.) are significantly above their 40wMAs, suggesting that a minor price correction may occur toward their averages.
Stocks that have a rising 40wMA and are close to their respective averages, such as Cisco Systems Inc. and EMC Corp., are currently near an attractive entry level.
Two of the 13 IT stocks have a falling 40wMA – Google Inc. and International Business Machines Corp. – although the latter is quite oversold and may have a small recovery rally.
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.