What are we looking for?
Canadian-listed shares that are attractive based on trend-following and quantitative metrics.
This strategy focuses on identifying bullish technical patterns that hint at potential breakouts above key price resistance levels. By zeroing in on stocks near their 52-week highs, the strategy seeks to select Canadian equities that are already showing strong price performance, which enhances the chances of continued upward movement. Investors using this approach enter positions once the price breaks out of the patterns, and the investors aim to ride the trend as long as it persists.
The screen
Our initial screening process targeted Canadian stocks with a market capitalization exceeding $1-billion to focus on issues that are more stable and less volatile than smaller rivals.
A trend-following approach prioritizes stocks that consistently reach higher highs and higher lows. In our screening process, we identified stocks trading within 5 per cent of their most recent 52-week high, which helps pinpoint companies in established uptrends that have strong upward price momentum.
Lastly, we screened for Canadian stocks with a Trading Central Quantamental rating of 55 or higher, focusing on growth and momentum factors. The growth factor considers year-over-year changes in the price-to-earnings ratio (P/E), and growth in earnings per share and revenue. The momentum factor reflects the tendency of strongly-performing stocks to continue their success in the near term. The overall Quantamental rating combines key fundamental data and evaluates a stock in comparison to peers in the same industry group.
We have also included year-to-date and one-year returns for informational purposes.
More about Trading Central
Trading Central is a global leader in financial market research and investment analytics for retail online brokers and institutions. Its product suite provides actionable trading ideas based on technical and fundamental research covering stocks, exchange-traded funds, indexes, forex, options and commodities. Strategy Builder, our stock screener, is available through leading retail brokers in Canada and worldwide.
What we found
Topping our list is Seabridge Gold SEA-T, which acquires and explores gold properties in North America. The stock has the highest TC Quantamental Rating on our list at 71 out of 100, which is very strong. The stock is trading within 2.4 per cent of its record high after confirming a classic technical continuation flag pattern on July 26. A bullish flag pattern occurs during a dynamic market rally, representing a brief pause as the market catches its breath before the stock climbs again. The measured move target of Seabridge’s flag pattern is between $37 and $40. The stock has the second-highest year-to-date return on our list at an impressive 59 per cent.
Suncor Energy SU-T, the Canadian-based integrated energy company, has the largest market cap on our list at $69.5-billion. The stock has a strong TC momentum factor rating of 80 out of 100, as Suncor trades within 4.5 per cent of its most recent 52-week high from last week.
Implementing a stop-loss order is essential in trend-following strategies. A stop-loss automatically triggers a sell if the position moves contrary to the expected trend, helping to minimize potential losses and safeguard capital.
Trading Central Strategy Builder offers a back-testing feature that allows users to assess the historical performance of an investment strategy. Utilizing a five-year historical period with quarterly rebalancing, the described screen had a 27 per cent annualized total return, outperforming the S&P/TSX Composite Index, which achieved an 8 per cent annualized total return over the same period.
The investment ideas presented here are for information only. They do not constitute advice or a recommendation by Trading Central in respect of investing in financial instruments. Investors should conduct further research before investing.
Gary Christie is head of North American research at Trading Central in Ottawa.