Potential Golden Cross for 2 Canadian Stocks

Posted on September 1, 2021 by Mathieu Litalien

While there is no surefire way to determine which Canadian stocks are about to go on a bull run, there is one technical event that can be of use to investors – that is the "Golden Cross".

The Golden Cross is a technical indication in which a short term simple moving average (SMA) crosses over a long-term SMA – typically, the 50 and 200 SMAs are used. While this is not always a sign that a bull run is imminent, most bull runs proceed a Golden Cross.

It is important that those learning how to buy stocks become familiar with the differences between the fundamental analysis and technical analysis of stocks.

With that in mind, here are two tech stocks that are on the verge of this bullish technical event.

Tecsys (TSX:TCS)

Tecsys (TSE:TCS) is a software as a service (SaaS) company that specializes in the sale of enterprise supply chain management software for distribution, warehousing, transportation logistics, point-of-use, and order management.

While it generates most of its revenue from the United States, it does have a global presence. The importance of supply chain management has been magnified in light of the pandemic. Lockdowns have severely impacted the supply chain and even as we begin to recover, the issues with supply chain persist.

This is where a company like Tecsys can benefit. Increasingly, companies will need to reply on SaaS companies to improve logistics and gain a competitive advantage over their peers.

While Tecsys is up by ~7% YTD, most of those gains have come in the past little bit as it recovers from a pretty significant drop from 52-week highs. As of writing, the company is trading at a 20% discount to its all-time high of $66.58 that it achieved in mid-February of 2021.

As one can see in the chart below, positive momentum means the company is on the verge of a Golden Cross.

This is the type of event that can send its share price to new highs. The company is expected to grow in the mid-teens and thus far, has done an excellent job of meeting or exceeding analysts expectations.  

Kinaxis (TSX:KXS)

Interestingly, Kinaxis (TSE:KXS) is yet another supply chain management company. The company’s RapidResponse enables consequence evaluation and alerting, responsibility-based collaboration, high-speed analytics, and scenario simulation. It also includes supply and demand planning, capacity and inventory planning, and inventory management.

Much like Tecsys, Kinaxis is sitting on modest single digit returns in 2021 (~5%). Unlike its competitor, Kinaxis shareholders haven’t had much to cheer about as for most of the year it was sitting on pretty steep double-digit losses.

The fact that it is back in the black is a testament to a strong rebound in share price over the past month – hence the potential Golden Cross.

Kinxasis is trading at a 17% discount to its 52-week high which it achieved almost a  year ago to the day – in late August of 2020. Since then, the company has struggled to maintain any sort of momentum. While analysts are generally bullish on the stock, it is only trading at a slight discount to one-year target estimates of $199 per share.

This is due in large part to expensive valuations and to the fact that Kinaxis is only expected to reach high, single-digit revenue growth this year.

It is also worth noting that Kinaxis is firmly in overbought territory with a 14-day RSI of 75. While it can be oversold for some time, I do question how long it can maintain this momentum given current valuations and expected growth rates.

COVID-19 Variants

So why are these two stocks benefiting from strong momentum? Likely because COVID-19 variants are threatening further shutdowns and putting additional pressures on the supply chain. 

A supply chain that is increasing in complexity and that requires top class, SaaS solutions. 

Moving on, lets look at 2 Canadian stocks that hit overbought territory.

Disclaimer: The writer of this article or employees of Stocktrades Ltd may have positions in securities listed in this article. Stocktrades Ltd may also be compensated via affiliate links in the post below.

Mathieu Litalien

About the author

Mathieu is an individual investor and has been investing part-time for the better part of the past 20 years. He is primarily interested in fundamental analysis, focusing on the long-term and his portfolio is composed primarily of dividend-paying equities. Mathieu has a moderate risk profile and also looks for growth and value. His passion for finance and the markets have led him to his MBA and writing for Seeking Alpha and Stocktrades. Mathieu also focuses primarily on stock research and content production for Stocktrades.ca Premium and the Stocktrades blog.