5i Research Blog Posts

Tradable Lows in the Canadian Technology Sector

Understanding market technicals becomes a very important tool when emotion takes over and price swings don’t make sense. This is especially true during times of uncertainty and periods of market volatility like we’re experiencing now. Many people consider technical analysis voodoo and refer to it as people drawing lines on a stock chart. Although the drawing lines part might be true, technical analysis is about documenting investors psychology. Resistance and support levels, trendlines, market breadth and the VIX (market volatility index) are all created by fear and greed (people’s emotions). My job as a chartist is to document that fear and greed.

What most people don’t understand is that the stock market will bottom before the bearish news flow hits its peak. If anyone has tuned into the news, they’d think the sky was falling. I have also noticed through my interactions that investor psychology has flipped and in my “opinion” it is wrong. – READ MORE

Three Trend Following Ideas

This quote is from my favourite podcast Top Traders Unplugged, “simplicity is the ultimate sophistication”. The philosophy is explained in Barkha’s November 8th blog titled: Why buying at all-time highs is a good strategy. Below are three trends following ideas that fit the strategy perfectly.

After selling off from the IPO date of October 8, 2019, Docebo (TSX:DCBO) has nearly recovered that entire move and is now threatening a breakout to a new all-time high. Watch for a price move above $16.23 as it would suggest the beginning of an uptrend. – READ MORE

Three Stocks Poised to give a Technical Buy Signal

I run a series of scans each day that searches for abnormal volatility. The goal is to seek out the potential of momentum coming into an underlying name or sector. This allows me to identify trade opportunities before they become obvious to the masses. Below are three technical risk/reward setups that are currently appearing on my radar.
After consolidating over the last 12 months Savaria (TSX:SIS) has begun to push higher from a falling wedge reversal pattern as the monthly ppo (percentage price oscillator) momentum indicator attempts to curl higher off the zero line (price momentum is considered to be positive when the momentum indicator is above zero). This type of technical setup suggests an upward move to… – READ MORE

Three So-Called “Boring” Stocks Poised to Maintain Momentum

Momentum is an anomaly that demonstrates securities that have outperformed relative to other assets (or peers) will continue to outperform while losers (who have performed poorly) will continue to underperform. The existence of momentum within the stock market has been documented as far back as 1801. There’s even evidence that predates any academic research suggesting that momentum has been part of the market from the very beginning. During this current period of market concern (increased volatility due to trade woes and fears of slowing economic growth) there has been no exception to the momentum rule. The demand for safety and yield has continued to make momentum investing extremely successful. Not only has the momentum strategy continued to outperform in this environment but it’s also provided a strategy that allows investors to block out all external noise (such as recession fears) while allowing them to stick with the trends that are working. – READ MORE

Three Stocks Poised for All-Time Highs

Today I’m going to be highlighting three stocks poised to breakout to a new all-time high while introducing StockCharts.com Technical Rank (SCTR indicator). This indicator is used to identify relative strength (outperformance) versus its peers, not to a benchmark like other relative performance indicators. This is because benchmarks such as the S&P 500 are dominated by large-caps and may not truly reflect the market as a whole. SCTR sorts all stocks within a specific universe (the TSX in this case) which allows chartists to see how a stock is performing relative to other stocks. Since most fund managers’ goal is to outperform the benchmark, money tends to flow into stocks showing outperformance. When combined with the following technical setup such as a stock breaking out from a base (strong chart pattern) to a new all-time high, this strategy can not only be very powerful, but very profitable. As I mentioned in an earlier blog, being able to identify this type of breakout not only allows investors to take a position in stocks during the early stages of an uptrend (often the starting point of a major price move), but also allows investors to take advantage of this asymmetrical equation that often translates into an acceleration in upside price momentum as there’s no resistance (overhead supply) from people selling at a loss (everyone in the stock is now a holding a winning position). One must always define their risk beforehand and set a stop-loss order in the event of a signal failure.
Three recent examples to demonstrate the power of this type of technical setup upon breakout followed by the asymmetrical equation are shown below – READ MORE

Navigating the Market Noise

When I first got involved in the market over 14 years ago, not only was it difficult for the Canadian retail investor to find information, but it was virtually impossible. I was always good at finding nice technical chart setups but I never had a place to go seek out information. If I was lucky I’d find a tidbit of information on the only stock forum available or I’d have to watch hours of business television with the hope of my stock getting mentioned. Back then having access to any type of information was power. Today, having power means knowing what to ignore.

As I get closer to my chartered designation, I find myself being more interested in behavioral finance (psychology). When investors hear the term technical analysis they often think of lines and patterns on a stock chart. I’ve even heard skeptics call it voodoo. Although, many are not aware that the driving force behind the lines and patterns is crowd psychology. A stock chart is nothing more than a picture of human emotions. The term ‘price has memory’ comes from the fact that support and resistance areas are created by human emotion and psychology. Not only is psychology important for understanding a stock chart, but it’s very important for understanding our own manifestations and helps us to block out the unnecessary market noise. The hardest part is developing awareness. Once aware investors are able to mitigate the effects of their own biases while taking advantage of the herd behavior. – READ MORE

3 Dividend Paying Stocks Nearing a Breakout

Identifying breakouts from strong chart patterns is a skill that allows investors to take a position in stocks during the early stages of an uptrend. Often these breakouts can be the starting point of a major price move. A breakout to new highs makes this strategy even more favorable as there’s no resistance (overhead supply) from people selling at a loss or breakeven. This asymmetrical equation can translate into an acceleration in upside price momentum. When combined with a dividend, this strategy can be very profitable. It also doesn’t hurt getting paid to wait until upside price momentum kicks in. – READ MORE

 

Three Stock Charts Poised to Trend Higher

Many companies trading in the Canadian stock markets such as the TSX and TSX Venture exchange go through periods of consolidation where not a whole lot happens with either the share prices or the fundamentals at the company. This is where technical analysis can be helpful as it provides a bit of a guide as to when these ‘quieter’ stocks may be set to make a move. Here are a few stock charts with companies poised to trend higher. – READ MORE

Consumer Staples and Telecommunication Stocks Breaking out on Seasonal Cue

The old investing adage “sell in May and go away” may not always hold true to the exact month, but as we enter the dog days of summer, sector rotation is showing up on seasonal cue. Today I’ll be focusing on consumer staple and telecom stocks which consistently outperform the TSX index between the months of May and October. If you are a frequent visitor to my website, you’ll notice that I’ve been featuring many of the following stocks over the last few weeks as they began to issue a momentum alert to signal their breakout. – READ MORE

Technical Analysis: Three Trading Ideas for this Week

If you are subscriber to my website then you will be familiar with my daily blog where each day I scan the TSX and feature my favourite ideas under three categories: Breakouts (or potential breakouts), Momentum Plays, and Bottom Fishing Candidates.
Today I am bringing that formula over to 5i with the following three ideas.  – READ MORE

Technical Analysis on Photon Control, VersaBank, Dollarama

Over the last 6-months, Dollarama (TSX:DOL) has been consolidating within a falling wedge continuation pattern. What caught my attention is the tight trading range that has formed during the last 4-weeks. This price action is being compressed like a coiled spring below the volume by price bar. Periods of low volatility are often followed by high volatility. A breakout from this trading range could be explosive. This also comes at a time when the MACD-histogram is making higher lows. The MACD-histogram was designed to anticipate signals in the MACD, which was designed to identify changes in the price momentum. – READ MORE

Logarithmic Scale vs. Arithmetic Scale

The term “trend is your friend” derives from the theory that stocks trending in one direction will continue to go much higher than assumed possible. In other words, great companies with a proven track record tend to continue to perform well. The difficulty with this investment strategy is emotions because people have trouble buying stocks breaking out to new highs. This psychological barrier becomes troublesome as many investors avoid these breakouts. One way to help mitigate some of this emotion is to use logarithmic scale charts. – READ MORE

Be Aware of Crowd Psychology

Schiller’s dictum – “Anyone taken as an individual is tolerably sensible and reasonable – as a member of a crowd, he at once becomes a blockhead.”

At a time when many retail investors use tools like social media as a resource to find investment information, understanding crowd psychology becomes crucial. – READ MORE

The Relative Strength Indicator

Since the goal of many investors is to outperform the market, the relative strength indicator is a very important tool for identifying opportunities. The relative strength indicator is often used to compare the performance of a stock vs. a benchmark such as the TSX index. More importantly, at a time when the TSX is down more than 900 points from the January high, the relative strength indicator can also be used to find pockets of strength. – READ MORE

Technical Analysis: Three Trading Ideas for this Week

New Flyer Industries (NFI-T) has given a textbook trend following a signal. Price action spent the last eight months consolidating within a cup & handle continuation pattern before breaking out to new all-time highs.

Often people find it hard buying stocks at all-time highs. To show the potential of this type of breakout below, I included a chart of The Stars Group (TSGI-T), which in November had a very similar continuation pattern and breakout to what we are currently seeing with New Flyer. The Stars Group has since went on to yield approximately a 20% – READ MORE

Using Weekly Charts to Identify Long-Term Trends

Looking at the bigger picture allows investors to take advantage of longer-term trends and chart patterns missed by most novice investors. Using weekly charts can help remove intraday noise and volatility that tends to scare short-term focused investors.
Institutional money managers with several million dollar positions use larger time-frames like the weekly chart because they can’t react fast enough to the short-term fluctuations in the market. Since institutional money moves stock prices, it can become very profitable for retail investors if they are able to identify and jump on these larger trends created by this money. Each bar on the weekly chart represents one week of price and volume history. – READ MORE

The Importance of Having a Plan

No matter how much experience you have as an investor, a trend following system is a straight forward approach to systematic trading that can be easily deployed and managed by anyone. This is a great way to profit from large moves without having to manage positions on an intraday basis. If you have spent time learning lessons the hard way, like myself, then you will relate to what I am about to say.

The two problems I struggled with the most were taking a position too large for my account and selling too soon. In my experience these problems often go hand in hand, I was always putting myself in the perfect position for emotional ruin. Every time I would get onto a winning trade I became greedy or scared and locked in profits prematurely, cutting my potential returns short. – READ MORE

The Importance of Volume Indicators & Not Fixating on Major Indexes

My main focus is tracing abnormal volatility which flags the potential of momentum coming into an underlying name or sector. As a momentum trader, I rarely look at major indexes, but at small-cap names with high institutional or insider ownership. This is because small-cap names offer many advantages to traders. One being that they tend to move with a greater velocity than large-cap names. This is due to supply and demand.

Generally, retail traders follow the major indexes, while assuming these benchmarks reflect the entire market. However, this is often not the case. Just analyzing the major indexes limits your ability to make higher profits. This is not a problem for the hobby trader, but for the trader interested in making a living, this can become a major issue. Rather than limiting oneself to big name companies, retail traders should embrace every potential trade. Small-cap stocks that are not components of a major index rarely follow the same price action. Small-cap stocks often move in advance of the indexes and at times are not correlated, especially here in Canada. – READ MORE

Technical Analysis Stock Picks on Savaria (TSX: SIS), Stella-Jones (TSX: SJ), and AGF Management (TSX: AGF.B)

Savaria Corp. (TSX:SIS) has just performed what looks like a successful retest of the March breakout on massive volume. There’s a saying in the technical world, “What was once resistance will now become support”. When price action breaks out above resistance, it signals a change in supply and demand. If price action returns to this level that once was resistance, there is likely to be an increase in demand and that past resistance will now become support, and that is exactly what happened last week with Savaria.

Not only did the price action come back to successfully retest the breakout, but it was clear that there was an increase in demand as the buyers aggressively stepped up. – READ MORE

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