The Stock:GMP Capital Inc.
Recent price: $13.90
Trend: The financial sector has been carrying the TSX on its back recently. Despite the laggard performance of energy stocks and the cooling mining sector, the S&P/TSX Composite Index is flirting again with the 11,000 mark, thanks to the strength of financials. The S&P/TSX Financials Index is up 18% in the past three months. Highlighting this great summer performance are the banks. Once again churning out profits, the shares of Toronto-Dominion Bank , Royal Bank of Canada , and National Bank of Canada hit 52-week highs last week, while the Bank of Montreal traded in unusually high volume as it rallied after beating earnings estimates. A major source of income growth for the banks comes from improved conditions in the market. A bull market unleashes investment capital and drives earnings for these intermediaries. A self-fulfilling prophesy, the financial sector thrives when the market comes alive.
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The Trade: Although the banks have a hand in much of the wealth management of Canadian assets, share prices of independent investment dealers like Canaccord Capital and GMP Capital are in bullish trends, too. A Stock Trends Bullish Crossover at $7.94 in mid-May, GMP is now approaching $14. With the exception of high trading volume near the end of July, the stock has advanced on moderate trading through the summer rally. For a stock that has out-performed the TSX market by 35% in the last three months GMP has kept a relatively low profile. Not a current member of the S&P/TSX Composite Index, the stock is absent the demand of index portfolio managers. Nevertheless, retail traders have no reason to ignore this performing stock.
The Upside: The share price of GMP began its upward trend in December of 2008 after hitting a low of $3.03, and has advanced in a favourable fashion along its trend line. It has tested support along the 13-week moving average trend line four times, rallying off this support each time. This is always a good sign for trend traders. Resistance at the $14 level should be expected, but a continued bullish trend for the financial sector should help GMP scale to the $15.50 area where some overhang of supply may cap movement. High trading volume at that level last summer signals that some investors will be anxious to break even on their positions. Anticipation that GMP could re-enter the S&P/TSX Composite Index in the coming year will help improve demand for the stock and improve the stock's upside potential in a bull market.
The Downside: If the stock market falters, GMP will suffer accordingly. This trade assumes that the current bullish market trend has some legs, a viewpoint that Stock Trends supports. However, a correction should always be anticipated. The current trend line support at the $11 region implies a risk of 20% for investors who enter the trade at the current price level. Some investors might wait for a pullback in price before entering the trade, anticipating the support below. This is always a consideration when trading a bullish trending stock. Positive trading results depend on good trade timing.
Skot Kortje has been analyzing stock market trends for 15-years using trend analysis. His Stock Trends indicators have been published by The Globe and Mail since 1995. For more go to http://www.stocktrends.ca/