Cyclical stocks have been an area of strength, while interest-sensitive securities and gold and silver stocks have been out of favour with investors.
Highlighted in this issue of the TSX Crosses report is Clearwater Seafoods Inc. (CLR-T). The shares recently displayed a "death cross".
A "death cross" is a potentially bearish signal for a stock that occurs when a shorter-term moving average, such as the 50-day moving average, crosses below a longer-term moving average, like the 200-day moving average. When this occurs, it marks a potential negative signal confirming the downtrend in the price action may have traction.
The opposite scenario is a bullish technical signal called a "golden cross." A "golden cross" occurs when a short-term moving average, such as the 50-day moving average, crosses above a longer-term moving average, such as the 200-day moving average. When this occurs, it marks a potentially positive signal suggesting the upward price momentum may have traction.
Many traders suggest waiting until the 50-day moving average crosses above the 200-day moving average by a certain percentage, such as 3 per cent, to confirm the bullish signal.
With respect to Clearwater, last month the share price plunged 12 per cent on high volume the day after the company reported disappointing third-quarter financial results. Adjusted earnings per share came in at 30 cents, below the consensus estimate of 37 cents. Given the earnings miss, this stock may have become a "show me" story, with buyers waiting to see an improvement in earnings before accumulating shares. Consequently, the share price may continue to drift lower.
There is initial support around $11, and failing that, there is solid support at $10, a level where the stock price has bounced off of on several occasions.
From a fundamental perspective, analysts are forecasting quite the recovery in the share price over the next year. There are four unanimous "buy" recommendations. The one-year target price is $16.13, suggesting the share price may appreciate over 37 per cent. Individual target prices are as follows: $15, $15.50, $16, and $18, implying upside of between 28 per cent and 53 per cent.
Earnings forecasts have been trimmed in recent weeks. The consensus earnings per share estimate currently stands at 62 cents for 2016 and 77 cents for 2017. The stock is trading at an enterprise value-to-EBITDA multiple of 8.2 times the 2017 consensus estimate, in-line with its three-year historical average.
Listed below are securities with recent golden and death crosses, as well as potential future golden and death crosses.
This report is based on technical analysis. Technical analysis does not replace fundamental analysis, but can help identify companies worth having a closer look at.