What are we looking for?
Canadian-listed equities that are attractive from a trend-following and quantitative perspective.
This strategy seeks to detect established bullish patterns, such as triangles, flags, or head and shoulders formations, that signal potential breakouts above resistance levels. By targeting stocks near their 52-week highs, the strategy aims to select Canadian stocks that are already exhibiting strong price performance, increasing the likelihood of sustained upward trends. Investors employing this strategy take positions when the price breaks out from these patterns, riding the trend as long as it maintains its momentum. This approach aims to maximize gains while managing risk by following predefined exit points in case the trend reverses.
The screen
Our initial screening process targeted U.S. stocks with a market capitalization exceeding $1-billion to focus on more stable, less-volatile stocks.
A trend-following approach emphasizes stocks that consistently set higher highs and higher lows. In our screening process, we specifically looked for stocks trading within 10 per cent of their most recent 52-week high, which helps identify stocks in established uptrends and upside price momentum.
Trading near a 52-week high often implies strong technical indicators, such as higher trading volumes and favourable chart patterns, which are critical in a trend-following strategy. We screened for stocks that have confirmed bullish classic technical patterns.
Finally, we screened for Canadian stocks that have a Trading Central Quantamental, growth and momentum factor rating of 55 or higher. The growth factor takes into account the year-over-year change in price/earnings, earnings-per-share (EPS) growth and revenue growth. The momentum factor refers to the tendency of winning stocks to continue performing well in the near term. The overall Quantamental rating takes into account the most important fundamental data and rates the stock against its peers in the same industry group.
We have also included year-to-date (YTD) and one-year return 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
The overall results were quite broad in industry; however, two biotech stocks stood out.
Topping our list is Primo Water Corp. PRMW-T, a pure-play water solutions provider that operates under a recurring revenue model in the large-format water category. The stock has the highest TC Quantamental rating on our list at 70 out of 100 due to very strong ratings in growth and momentum factors at 84 and 90 respectively. The stock price is trading within 1.35 per cent of its record high after confirming a classic technical ascending continuation triangle pattern. An ascending triangle, with its increasingly higher lows and constant highs, indicates that buyers are more aggressive than sellers. The pattern typically forms because a supply of shares is available at a certain price, represented by the upper flat line. When the supply depletes, the shares quickly break out from the top trend line and move higher.
Celestica Inc. CLS-T, a designer and manufacturer of hardware and supply-chain solutions, has the highest TC momentum factor rating on our list at 93 out of 100 as the stock continues to trend higher amid the artificial intelligence boom. The stock has the highest YTD and one-year price performance on our list at 100 and 315 per cent, respectively. The stock confirmed a classic upside breakout technical pattern on May 8 after breaking above key price resistance at the $67.86 price level.
Incorporating a stop-loss is crucial when using trend-following strategies. A stop-loss order automatically initiates a sell order if the position moves against the anticipated trend, thereby limiting potential losses and protecting capital.
Trading Central Strategy Builder offers a back-testing feature, allowing users to assess the historical performance of an investment strategy. Utilizing a five-year historical period with quarterly rebalancing, the described screen had a 25-per-cent annualized total return, outperforming the S&P/TSX Composite Index, which achieved a 6-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 the investment in financial instruments. Investors should conduct further research before investing.
Gary Christie is head of North American research at Trading Central in Ottawa.