Eleven stocks poised to rally in January

What are we looking for?

Canadian stocks that may benefit from the January effect this year.

Some stock pickers believe in a principle known as the "January effect," in which stocks rally in the month of January. This effect is believed to be caused by stocks becoming oversold in December as a result of tax-loss selling and "window dressing" by portfolio managers. Stocks most affected by the January effect should be those that are trading lower in the month of December and therefore are candidates for tax-loss selling and/or window dressing. In addition, stocks that have sold off strongly are more likely to have found themselves in an oversold position.

The screen

We will be using Recognia Strategy Builder to search for Canadian stocks that may be poised to benefit from the January effect.

We begin by setting a minimum market cap threshold of $1-billion dollars. Although the January effect should affect all stocks, portfolio managers are more likely to be holding mid- and large-cap stocks than their small-cap counterparts.

Next, we will look for stocks that have sold off strongly in recent months. We will select only stocks that have experienced price declines of at least 10 per cent over the preceding 13 weeks.

Finally, we will use a technical analysis oscillator known as the relative strength index (RSI) to find stocks that find themselves in an oversold condition. Our screen will identify companies whose RSI has recently crossed above 30, signalling a bullish outlook.

What did we find?

Aimia Inc., based in Montreal, owns and operates numerous loyalty programs, including Aeroplan. After trading mostly flat until September, Aimia has declined approximately 14 per cent in the past 13 weeks. Aimia recorded a bullish RSI event on Dec. 19 and traded slightly higher since then.

SNC-Lavalin Group Inc. is an engineering and construction giant based in Montreal. The stock put in a good performance from January to August, but sold off sharply in the last quarter of the year. A rebounding economy in Canada and the United States may boost SNC-Lavalin's stock price in 2015.

Like most stocks in the energy sector, Gibson Energy Inc. has been hit hard, declining more than 30 per cent in the past 13 weeks. Though no one knows where the price of oil will eventually find a bottom, some analysts believe that the energy sector has become oversold, making energy stocks an interesting contrarian investment. Gibson Energy recorded a bullish RSI event on Dec. 19.

More about Recognia

Recognia is a global leader in automated quantitative analysis and engagement solutions for retail online brokers and institutions. Recognia's product suite provides actionable trading ideas, including daily updates on 72,000 investment instruments and 800,000 options contracts. Recognia analyzes data from 85 exchanges worldwide, providing technical and fundamental research on stocks, ETFs, indexes, forex, options and commodities.

The investment ideas presented here are for information only. They do not constitute advice or a recommendation by Recognia Inc. in respect of the investment in financial instruments. Investors should conduct further research before investing.

Peter Ashton is vice-president of retail and self-directed investing at Recognia Inc.