The S&P/TSX composite fell 2.4 per cent in the week up until 12 p.m. ET Friday. The benchmark's Relative Strength Index (RSI) reading stands at 51.8, almost exactly at the midway point between the RSI buy signal of 30 and the sell signal of 70.
Equity market weakness has left six TSX stocks trading in official oversold territory, led by Westshore Terminals which plummeted 19 per cent for the week. Waste and recycling stocks Newalta Corp and Progressive Waste Solutions remain oversold and two smaller energy companies are on the last. Valeant Pharmaceuticals International Inc. is just barely in oversold range with an RSI of 28.9.
I picked the larger capitalization Alimentation Couche-Tard for the focus stock this week even though it's not quite below the RSI buy target of 30.
Technically speaking, Couche–Tard is interesting because it has rarely been oversold in the past 24 months and also because when it was, the stock has rallied nicely. In April of this year, an oversold reading was followed by a 32-per-cent rally by early August. In late August, another RSI buy signal was followed by a 16-per-cent rally although admittedly, the gains were short lived.
The reason for the sell-off in Couche-Tard stock was the surprise departure of the company's Chief Financial Officer, which is always a red flag even if, most often, there's a reasonable explanation. This is another case where investors must work through fundamental research before considering buying the stock.
There are ten stocks that are trading in overbought, technically vulnerable territory according to RSI. The surprise addition is Stella Jones Inc., a company that makes construction materials out of compressed wood. Rogers Communications Inc., Brookfield Property Partners and Enercare Inc. remain overbought.
Follow Scott Barlow on Twitter @SBarlow_ROB.
