Consumer discretionary stocks with bullish trends

What are we looking for?
U.S. consumer discretionary stocks with long-term upside potential.

The screen
We limited our pool to the S&P 100 Index. To find the most promising, we looked at each stock's 40-week moving average (40wMA). This is the average closing price for the stock over a period of 40 weeks. Charting the moving average week by week gives us a sense of investor 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 40wMA 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 40wMA. 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, suggesting a change in trend, investors can usually expect a recovery rally to follow toward the average to provide a buying opportunity.

More about Phases & Cycles Inc.
Phases & Cycles Inc. has been providing independent research for more than 24 years, using behaviour analysis. It publishes investment ideas for both the Canadian and U.S. equity markets. Its research reaches more than 1000 users across North America and Europe.

What did we find?
Of the five stocks that have a rising 40wMA, Facebook Inc. and Walt Disney Co. are significantly above their 40wMA, suggesting that a minor price correction may occur toward their average. At the same time, Comcast Corp., Home Depot Inc. and Nike Inc. are close to their 40wMAs suggesting that they are currently at a good entry level. Of the five stocks with a flat 40wMA, General Motors Co., McDonald's Corp. and Lowe's Cos. Inc. are trading below their 40wMA, suggesting that these stocks could soon begin a new down-trend, but Ford Motor Co. and Starbucks Corp. are above their averages suggesting these could soon resume the up-trend. The remaining three stocks have a falling 40wMA, suggesting that these stocks are already in a down-trend.

In the adjoining table, we summarize our findings. You may find a more detailed list covering a larger pool of U.S. consumer discretionary stocks at www.phases-cycles.com.

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.