The Globe and Mail attempts to identify stocks that have the potential for
a recovery rally of 10 per cent or
more in its Friday, Oct. 17, edition. The Globe's guest columnist Monica Rizk and Ron Meisels write in the Number Cruncher column that they looked a stock's 40-week moving average. This indicator was chosen because
stocks tend to stay relatively
close to their 40-week moving average.
When stocks rise far above
this average, investors often use this as
an opportunity for taking profits,
since this usually leads to a price
correction toward the 40-week
moving average. Conversely,
when stocks decline significantly
below
this average, a recovery rally
could follow toward the average.
Investors usually wait for the rally
for this opportunity to sell,
while the more short-term oriented
may anticipate the rally to
take advantage of the upside
potential for a quick trading opportunity.
The guests columnists focused on stocks trading above $5 but below their falling 40-week moving average by 10
per cent or more.
Oversold stocks are Magna International, TransAlta, Silver Wheaton and First Quantum Minerals.
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