What are we looking at?
U.S. industrial 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 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 a bullish pattern. We identified the status of each stocks 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 – 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. 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 15 industrial stocks in the S&P 100 Index, nine of which have a "rising" 40wMA and eight of these nine are trading above their respective 40wMAs. Among these, five are significantly above their 40wMAs, suggesting that a minor price correction may occur toward their average; they are: FedEx, General Dynamics, Lockheed Martin, Norfolk Southern and Union Pacific. Stocks that have a rising 40wMA and are close to their respective 40wMAs, such as Raytheon and United Parcel Service, are currently near an attractive entry level.
Five of the 15 industrial stocks have a falling 40wMA and these include: Accenture, Boeing, Emerson Electric, General Electric and United Technologies.
In the adjoining table we summarize our findings.
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.