BofA Securities analyst Stephen Suttmeier published a report Wednesday using an approach that, while I’ve never seen it done in research, mirrors my own investing methodology.
Mr. Suttmeier is a technical analyst, using price action and trading volume to predict the future course of stock prices. In the report, he starts with BofA’s top 10 investment ideas for the first quarter of 2022, chosen by analysts using fundamental criteria (valuations, profitability, and the like), and applies technical analysis to uncover the selected stocks with the best technical setup now.
The full list of picks is Carrier Global Corp., Citigroup, CNH Industrial N.V., CrowdStrike Holdings Inc., Lamb Weston Holdings Inc., Occidental Petroleum Corp., Rexford Industrial Realty Inc., ViacomCBS Inc. and Xcel Energy Inc. There is one short idea, Autozone Inc.
Mr. Suttmeier chose Carrier, CNH Industrial and Occidental Petroleum as the best short term opportunities. In the first case, he sees strong underlying technical support for the stock at US$51 (it’s currently trading near $52.50) and the potential for a breakout above $57 - the top of its recent trading range.
Agricultural machinery provider CNH Industrial ended Tuesday’s trading at US$16. The stock price recently pushed through previous resistance levels near US$13 and BofA believes that it could break to over US$20 after re-testing US$13.
Occidental Petroleum, currently trading at US$35, bounced higher twice after hitting the US$10 level in 2020. This is called a double bottom which usually signals a floor for the share price. Mr. Suttmeier sees the potential for a break higher to above US$37, and possibly US$40 in the coming weeks.
A couple decades ago, I would jokingly equate technical analysis to astrology, but I have developed more faith in it over time. This is not to say I would ever buy a stock based on price action alone without knowing the company in detail.
BofA’s top 10 ideas list is a good starting point for further research but at this point I don’t know any of the companies well enough to assess the selections. I will point out, however, that combining fundamental and technical analysis has proven a successful trading and investment strategy.
-- Scott Barlow, Globe and Mail market strategist
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