What are we looking at?
Attractive Canadian industrial stocks.
The screen
We limited our pool to the S&P/TSX composite index.
We looked at each stock's 40-week moving average (40wMA). This is the average closing price over a period of 40 weeks. Charting the moving average week by week gives us a sense of investors' 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 bullish investor behaviour. We listed the Canadian industrial stocks and identified the status and level of each stock's 40wMA in the adjoining table.
We chose this indicator because stocks tend to stay relatively close to their 40wMAs. When a stock rises 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, which also provides a selling opportunity.
More about Phases & Cycles
Phases & Cycles Inc. has been providing independent research for more than 24 years, using behaviour analysis. We publish investment ideas for both the Canadian and U.S. equity markets. Our research reaches more than 1,000 users across North America and Europe.
What did we find?
There are 23 industrial stocks within the S&P/TSX composite index and 13 of these are currently trading above their rising 40wMAs. Among the ones which are closest to this average and show other positive characteristics are CAE Inc., Superior Plus, Transcontinental Inc., and WestJet Airlines Ltd. Of these, CAE and WestJet have recently pulled back to their averages and now appear ready to resume their up-trend, while Superior Plus and Transcontinental may need more time to begin a new up-leg.
Among the most extended stocks – the ones that are significantly above their 40wMA – are Air Canada, First Service and Ritchie Bros. These stocks will require a considerable price correction before they become better candidates for investment.
The stocks with a negative "per cent to average" are trading below their 40wMA and therefore not good candidates for investment at this time. It is worth noting that several of these stocks are currently extremely oversold and may have a minor recovery rally, but only to provide a better selling opportunity. These include: Black Diamond, Bombardier Inc., Newalta Corp., Russel Metals Inc. and SNC-Lavalin Group Inc.
Readers should consult a professional before making investment decisions.
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.