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Energy stocks with long-term upside potential

Canadian Natural Resources is one of four Canadian energy stocks that satisfy all the criteria for long-term upside potential.

Todd Korol/REUTERS

What are we looking for?

Energy stocks that have long-term upside potential, based on four technical indicators.

The screen

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We limited our pool to the energy stocks in the S&P/TSX composite index.

To find the most promising, we looked at each stock's moving average. This is the average closing price for the stock over a recent period, usually the past 10 weeks (10wMA) and past 40 weeks (40wMA). 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?

We started by selecting only those stocks that are above both their 40wMAs and 10wMAs. We then narrowed our search by choosing only the ones with positive stochastic and on-balance volume (OBV) indicators.

The stochastic indicator measures investor activity. It looks at today's range (defined as today's high minus today's low) and compares it with the average range of the previous five days. A positive signal is generated whenever today's range is higher than the previous five days' average. This suggests that buyers are willing to pay more for the stock than they did during the last five days and shows a positive trend.

On-balance volume (OBV) is used to detect momentum. Volume should keep pace with price; each $1 rise in price should be accompanied by a commensurate rise in volume. A rise in price on lesser volume would suggest a negative signal for the stock.

What did we find?

We found four stocks that satisfy all four criteria and 17 others that had three positive readings, suggesting a possible small correction before the resumption of their up-trend. In the adjoining table we summarize our findings.

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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.

Energy stocks that have long-term upside potential

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About the Authors
Senior Technical Analyst at Phases & Cycles Inc.

Monica Rizk, Senior Technical Analyst, has a Bachelor's degree in Business Administration and completed the Canadian Securities Institute course. She has been with Phases & Cycles since September 2000 and specializes in the research of Canadian and US stocks using Point & Figure as well as bar chart analysis. More

President of Phases & Cycles Inc.

Ron Meisels, President, Phases & Cycles Inc., has been active as an Analyst since 1971. He was Vice President and Director of Technical Research of Nesbitt Thomson (now BMO Nesbitt Burns) from 1982 to 1990. He was ranked among the top three technical analysts by Canadian Institutions for six consecutive years (Brendan Wood Survey). More

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