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What are we looking for?

Large U.S. stocks that have long-term potential for gains, based on four technical indicators.

The screen

We limited our pool to the stocks in the S&P 100 – essentially the largest 100 public companies in the United States.

To find the most promising, we looked at each stock's moving average. This is the average closing price for the stock over the past 10 weeks (10wMA) or past 40 weeks (40wMA). Charting the moving average week by week gives us a sense whether investors are growing more (or less) enthusiastic about the company's outlook and whether they are more (or less) likely to purchase the stock.Technical analysts pay considerable attention to moving averages, because the beginning of an uptrend in a stock is generally signaled when the short-term moving average (10wMA) crosses above a rising longer-term average (40wMA).

To start our selection process, we picked only those stocks trading above their 40wMAs. We then examined each stock and selected only those that are also above their 10wMAs and have positive stochastic and on balance volume (OBV) indicators.

The stochastic indicator measures investors' activity. It looks at today's share price 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-day's average. It suggests that buyers are willing to pay more for the stock than they did during the last five days.

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 increase in volume. A rise in price on lesser volume would suggest a negative signal for the stock.

What did we find?

The accompanying table shows the stocks that are trading above both their 40wMAs and 10wMAs and have positive stochastic and OBV indicators.

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.

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