You can profit from shorter-term swings in value by looking for stocks that are stuck within a sideways trading range. ValueTrend portfolio manager Keith Richards reveals four stocks stuck in a sideways trend which offer you profit-taking trading opportunities.
Some stocks are good long-term holds. Such stocks are in a nice upward trend, and display consistent, solid earnings growth over time. But there is another type of stock pattern that you can profit from if you don’t mind taking advantage of shorter-termed swings. I quite like stocks stuck within a sideways range because you can define your trading plan—you know up front what your entry and exit points are.
A sideways trading range is one of the better technical patterns we can look to trade. When I look for sideways trading stocks, I try to find stocks (or ETFs) with a very defined top (that is, a point of resistance, past selling pressure) AND a well-defined bottom (or point of support, when buying pressure builds).
I’m also looking for enough profit between the bottom and top of that range to make it worthwhile. This, in my mind, means that I’m looking for swings of more than 10 per cent between the top and bottom of the trading range.
The top of a trading range is called ‘resistance’. The bottom of that range is called ‘support’. If a stock has a nicely defined, relatively flat-looking point of resistance but a choppy support level, it becomes too hard to pick your entry point.
The reverse is true for stocks with flat bottoms but choppy resistance points—it’s hard to find the right exit point. For this reason, I am looking for a fairly set pattern where we can easily identify the top and bottom of the trading range.
Please also bear in mind that a breakout from a defined trading range—whether from the top of the range or the bottom—indicates strong potential that the prior range is finished, and a new trend (either up or down) may have begun.
Let’s take a look at a few stocks that fit the criteria:
■ SNC-Lavalin Group Inc. (TSX—SNC), the construction and engineering giant, has been stuck in a fairly wide-swinging range since early 2016. The stock looks attractive if considered for purchase around the low $50s and sold around $58 a share. Perhaps it’s worth the wait.
■ BCE Inc. (TSX—BCE; NYSE—BCE). The long-termed chart is in an upward trend but the old resistance levels of around $57 per share from 2015 has become the floor since 2016. Resistance lies around $63. That’d be your trade. (We hold a position in both our ValueTrend Equity and ValueTrend Income Platforms—which I hold personally. (Yes, I eat my own cooking.)
■ Mondelez International Inc. (NASDAQ—MDLZ). We currently own this stock in our ValueTrend Equity Platform. Mondelez’s trading range spans from about $41 to $46 a share. It currently sits near the top of that range.
The stock could break out if a buyout or merger within the industry occurs—which has been “the talk” lately. But if it doesn’t, expect more of the same sideways action. Buy the lows and sell the highs in this range. Someday, MDLZ may break out. And someday, your prince (or princess) will come. Meanwhile, trading appears to be the only way to reap any money out of this zombie. This stock has been trading between $41 and $46 since early 2015.
■ Stantec Inc. (TSX—STN; NYSE—STN) is one of my favourite stocks to trade. It seems to have a nice range from $29 a share to $36 a share. The strategy is simple. Consider a buy of Stantec after a decline, then bounce from $30 or thereabouts. It looks like a sell at the top of the range, near $36.
Keith Richards, Portfolio Manager, can be contacted at firstname.lastname@example.org. He may hold positions in the securities mentioned. Worldsource Securities Inc., sponsoring investment dealer of Keith Richards and member of the Canadian Investor Protection Fund and of the Investment Industry Regulatory Organization of Canada. The information provided is general in nature and does not represent investment advice. It is subject to change without notice and is based on the perspectives and opinions of the writer only and not necessarily those of Worldsource Securities Inc. It may also contain projections or other “forward-looking statements.” There is significant risk that forward-looking statements will not prove to be accurate and actual results, performance, or achievements could differ materially from any future results, performance, or achievements that may be expressed or implied by such forward-looking statements and you will not unduly rely on such forward-looking statements. Every effort has been made to compile this material from reliable sources; however, no warranty can be made as to its accuracy or completeness. Before acting on any of the above, please consult an appropriate professional regarding your particular circumstances.
This is an edited version of an article that was originally published for subscribers in theSeptember 8, 2017, issue of Investor’s Digest of Canada. You can profit from the award-winning advice subscribers receive regularly in Investor’s Digest of Canada.
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