The S&P/TSX Composite was almost exactly flat for the trading week ending with Thursday's close.
In technical terms, the benchmark remains close to overbought levels with an Relative Strength Index (RSI) reading of 63 that's not far off the sell signal of 70.
The energy sector has provided some oversold, technically attractive TSX stocks, according to RSI.
There are four oversold stocks in total; Alaris Royalty Corp. is the index's most oversold stock with an RSI level of 17.7 that is well below the buy signal of 30. The others on the list are Cameco Corp., Torc Oil & Gas Ltd., and Baytex Energy Corp.
Baytex was an easy choice for the focus chart this week.
The stock is trading above its 200-day moving average and, as we've seen previously, RSI buy signals are far more effective when this is the case.
I shortened the time period on the chart because the stock was in suck a steep downdraft in the July 2014 to July 2015 period that RSI buy signals were no help whatsoever. In the past 12 months, RSI buy signals have been much more constructive, particularly the January 2016 buy signal that kicked off a 425-per-cent rally (that's not a typo) to early June. Previous buy signal on the chart worked far less well, with small rallies followed by flat stock performance.
Baytex may very well be another case where the 200-day moving average takes precedence over RSI. As of Thursday's close, the stock was 0.56 cents above the 200-day. If it holds above the trendline, the RSI buy signal could translate into another bounce in stock price. But if the stock falls below the 200-day, all bets are off and the buy signal may not be reliable.
The weekly warnings apply again this week. Technical analysis is widely used and useful but investors must complete fundamental research before making any portfolio transactions.
The overbought, technically vulnerable list of TSX stocks has 19 members this week, led by TMX Group Ltd. Technology stocks dominate the top of the list with CGI Group Inc., Celestica Inc. and Blackberry Ltd. all in the top 10. Other notable stocks in the overbought list include Rogers Communications Inc., Canadian Pacific Railway Ltd., Canadian National Railway Co. and Teck Resources Ltd.
Follow Scott Barlow on Twitter @SBarlow_ROB.
