FILE PHOTO: A sign board displaying Toronto Stock Exchange (TSX) stock information is seen in Toronto June 23, 2014. Canada's main stock index was little changed on Monday as weakness in financial and energy shares offset gains in the materials sector. REUTERS/Mark Blinch/File PhotoMark Blinch/Reuters
The S&P/TSX Composite was more or less flat for the trading week ending with Thursday’s close, easing lower by 0.2 per cent, but the benchmark remains in overbought, technically vulnerable territory according to Relative Strength Index (RSI).
The RSI level of 73 is just over the 70 sell signal and miles away from the oversold RSI buy signal of 30.
There are four oversold, technically attractive index constituents trading below the RSI buy signal led by Aecon Group Inc. Dorel Industries Class B, CI Financial Corp. and Extendicare Inc. round out the list.
I picked CI Financial as the focus chart this week in part because I was surprised that a company with its fortunes leveraged to market performance was not following the benchmark higher. This will only be a technical look, however, and those answers will be found in the fundamental research investors should complete before any market transaction.
RSI buy signals have been reasonably successful in uncovering profitable buying opportunities for the stock over the past two years, with the caveat that rallies following these signals have often been shortlived.
Two buy signals in August 2016 were ineffective as the price merely paused before heading lower. The stock rallied significantly in November of 2016, but the lowest RSI reading at that point was 32 – there was no official buy signal.
The August 2017 RSI buy signal provided the grounds for a lucrative entry point in CI stock. Between August 4, 2017 and January 25, 2018, the price jumped 16 per cent. Another buy signal in February 2018 was followed by a 4.2-per-cent rally in the next few weeks before another slide in price began.
There is enough here to make me curious about the next few weeks of performance, but the recent history of success for RSI buy signals is not strong enough to make justify a substantial bet.
There are 21 index stocks trading in the overbought range this week, led by ATS Automation Tooling Systems. Valeant Pharmaceuticals International, Great Canadian Gaming Corp., MEG Energy Corp., Canadian National Railway, TD Bank and Brookfield Business Partners LP are also on the list.
