What are we looking at?
Canadian financial stocks.
The screen
We limited our pool to the S&P/TSX 60 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 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 listed only the stocks that are currently trading above their rising 40wMAs at this time 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 10 financial stocks in the S&P/TSX 60 index. Three of these are above their rising 40wMAs: Brookfield Asset Management Inc., Canadian Imperial Bank of Commerce and Sun Life Financial Inc. Bank of Montreal, Manulife Financial Corp. and Toronto-Dominion Bank recently rallied above their 40wMAs to signal the start of a positive trend; however, all three need a minor correction before they can rally higher to confirm the beginning of a new up-leg. Bank of Nova Scotia and Royal Bank of Canada have yet to rally above their averages, and National Bank of Canada and Power Corp. of Canada are the weakest-looking stocks on the list at this time.
Readers should consult a professional before making investment decisions.
A more detailed list, covering a larger pool of financial 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.