THE STOCK: SNC-Lavalin Group
YESTERDAY'S CLOSING PRICE: $46.50
THE TREND: Global infrastructure projects are an important green shoot in the market's garden of economic activity, and the funnel through which much of government fiscal stimulus is injected. The engineering and construction companies that execute these projects have been participants in the stock market rally - a desired and anticipated effect of co-ordinated government policy. Whether these investments translate into broad economic recovery is highly debatable, but investors should be aware of the opportunities in this awakening for such companies as Fluor Corp., Chicago Bridge & Iron Co., Foster Wheeler Corp., KBR Inc..
Many investors have been looking for the right infrastructure exchange trade fund to properly capitalize on growth in emerging markets, specifically Asia. PowerShares Emerging Markets Infrastructure ETF and recently listed competing fund iShares Emerging Markets Infrastructure ETF tap into these regions. PowerShares rallied nicely through the spring before pulling back to its trend line support. After last week's advance, the ETF's share price is approaching its spring high.
Broader global infrastructure ETFs also showing Stock Trends Bullish trends are iShares S&P Global Infrastructure Index Fund and SPDR/FTSE Macquarie Global Infrastructure 100. Listed on the TSX is Claymore Global Infrastructure ETF, a fund that follows the performance of the MFC Global Infrastructure Index.
THE TRADE: Canadian investors can look to a homegrown global engineering firm for a trend and momentum play. SNC-Lavalin Group's stock has rallied from a March low of $26.35, breaking through resistance at $45 last week to open up further price momentum potential this summer.
The stock has been Stock Trends Bullish since early June, with last week's advance delivering the stock a 13-week performance premium over the S&P/TSX composite index - an impressive 29-per-cent gain compared to the TSX's 14 per cent. The stock's move off trend line support this month gives trend traders a cue to buy this vital infrastructure sector component.
THE UPSIDE: The current distribution of Stock Trends indicators reveals the strength of the underlying bullish sentiment in the stock market: There are four bullish stocks for every bearish one. Improving prospects for the global economy are implicit in SNC-Lavalin's recent successful debenture offering and announcements of large services contracts, including a $508-million Algerian deal to design and manage construction for a new city of 80,000. The next price level resistance for SNC lies at $50, but investors buying into this recovery story can look toward another 20-per-cent move above the stock's current level as a profit objective in the current trend.
THE DOWNSIDE: Should the stock retreat in coming weeks, a Stock Trends Weak Bullish indicator will alert investors to a threatened trend. Currently, the trend line support is at the $40 level; a share price drop below the stock's May resistance at $39 would signal an exit on the trade. This implies a current loss risk of 15 per cent before trend line support would engage, so investors should plan for potential failures in the summer stock market rally.
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/