What are we looking at?
Canadian materials 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 the past 40 weeks. Charting the moving average week by week gives us a sense of an investor's 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 identified the status of each stock's average (rising, falling or flat) 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 12 material stocks in the S&P/TSX 60 index. None of them are in an uptrend. Only two of the 12 have flat 40wMAs and are trading above these; they are Agnico Eagle Mines Ltd. and Franco-Nevada Corp.
Agnico Eagle has been trading within a wide horizontal trading range mostly between $25 and $45 for the past three years; a rise above $40-$42 would be positive and would signal the start of a new uptrend.
Franco-Nevada, on the other hand, was in an uptrend from 2013 to 2015. It violated the uptrend last summer when it declined below its 40wMA. It quickly found support near $51-$52, settled in a minor trading range and most recently found its way back above its 40wMA. A sustained rise above $73-$74 would signal the resumption of the up-trend.
The remaining stocks are currently in a major downtrend as they are trading below their falling 40wMAs. These stocks will require a considerable amount of time to build a large enough base to support a new uptrend.
Readers should consult a professional before making investment decisions.
A more detailed list, covering a larger pool of material 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.