These three stocks have been undergoing a squeeze, or a period of price compression that is usually resolved by a volatile move. The technical indicators suggest they will rise.
Cognizant Technology Solutions
Cognizant Technology Solutions (CTSH) provides information technology, business processing and consulting services. Its shares have been consolidating in a horizontal channel since the beginning of December.
The momentum indicators reflect the narrow range of the price action, and the Bollinger bandwidth reading is at a level which in the past has been followed by periods of volatility.
The upper end of the channel is being tested and the potential for an upside breakout is supported by the positive Chaikin money flow indication.
The stock is a buy after penetration of channel resistance using a trailing percentage stop.
Shares of Donaldson (DCI) , which manufactures filtration systems used in engines and industrial products, have been experiencing a volatility squeeze for the last month, with the stock price compressing between a downtrend line and the rising 50-day moving average.
Periods of low volatility are often followed by periods of high volatility, and this week the stock has broken above trend line resistance and is moving higher.
The relative strength index is above both its 21-period average and center line, and moving average convergence/divergence is making a bullish crossover. Bollinger bandwidth is at a level of compression not seen since early November, when the price momentum indicators were similarly positioned, and Chaikin money flow was moving into positive territory.
The stock looks like it has more room to run and is a long candidate at its current level, using a trailing percentage stop.
The stock price of Trinity Industries (TRN) , which manufactures and services rail cars, has been moving in a horizontal channel. The support line of the channel recently intersected with the rising 50-day moving average.
The stock bounced back up to channel resistance, forming a hammer candle in the Wednesday session and closed just above channel resistance. Moving average convergence/divergence is making a bullish crossover, and the stochastic oscillator is above its center line. Accumulation/distribution continues to move higher and is above its signal average. Bollinger bandwidth is at a level that preceded the September 2016 consolidation and the October selloff.
The stock is a good risk/reward long candidate at its current level using an initial stop under the channel support line.