Bullish investors looking to capture the rising fortunes of financial services stocks can trade the emerging trends of the group. Investment dealer Canaccord Financial fits the bill.
The Stock: Canaccord Financial Inc. (CF-T) Recent price: $12.95
The Trend
Whether propelled by bullish or bearish sentiment, investors are on the
move again. Although year-to-date trading activity on the Toronto Stock
Exchange in 2010 is below last year's tally of the same period,
November's trading volume and transactions are up significantly from the
activity of a year earlier. The total number of transactions on the
major North American exchanges in November was up 28 per cent from the
same November period of last year. Average daily volume on the platforms
of CME Group - where futures contracts on many important derivative
asset classes trade - was up 24 per cent in November from the previous
month.
Heightened market volatility spurred the revived trading, but a hopeful
investor class has responded by driving the stock market back to new
highs - both the S&P/TSX composite index and the Wilshire 5000 Total
Market index, the broadest measure of U.S. equities, eclipsed their
previous 2010 high-water marks last week.
Also reflecting the growing trading activity and bullish sentiment is
the performance of U.S. brokerage house stocks. The iShares Dow Jones
U.S. Broker-Dealers Index Fund, an exchange-traded fund that represents
the group, is a current Stock Trends pick, as are the stocks of TD
Ameritrade, E*Trade Financial, and optionsXpress Holdings. Both
optionsXpress and Interactive Brokers Group rallied to new highs on high
trading volume last week, as each company revealed the strength of their
balance sheets with special cash dividends for shareholders.
Investors see these improved conditions in the stocks of some
independent Canadian wealth management firms. Shares of Guardian Capital
Group rallied above trend and hit a new high last week, while
DundeeWealth Inc. traded heavily and begins December 58 per cent above
its summertime level.
High volume of trading characterized last week for the stocks of IGM
Financial and CI Financial, while shares of AGF Management and GMP
Capital Inc. have outperformed the S&P/TSX composite by 10 per cent in
the final quarter of 2010. Bullish investors looking to capture the
rising fortunes of these financial intermediaries can trade the emerging
trends of the group.
The Trade
Canada's largest independent investment dealer is Canaccord Financial.
Its stock rallied on high volume last week, hitting a new 52-week high
before closing the week below $13.
The company's announced ventures into expanding service in Asia - buying
China-based advisory firm Balloch Group and partnering with the
Export-Import Bank of China - lifted the stock, but these deals build
upon the growth strategy Canaccord staked its future on with its
acquisition of Genuity Capital Markets earlier this year.
Although its stock was a Stock Trends Bullish Crossover in September, an
indicator that would alert investors to an improving price trend, its
late-November rally off the 13-week moving average trend line to above
the $11.75 level was a good sign for investors looking for a more
positive signal before trading this bullish trend.
The Upside
Positive equity market conditions mark a technical objective above $16
for this trade, an advance of 25 per cent from the current share price.
An extended bull market will help fuel trading - and continued relative
price performance - for this and other wealth management and
broker-dealer stocks in the months ahead.
The Downside
A drop below $11.75 would be an early signal to exit this trade for
anxious short-term traders.