The S&P/TSX Composite dropped a marginal 0.2 per cent for the trading week ending with Thursday's close. According to Relative Strength Index (RSI), the domestic benchmark remains in neutral technical territory with a 56 RSI reading that is a bit closer to the sell signal of 70 than the buy signal of 30.
There are four benchmark constituent stocks trading in official oversold territory with RSI levels below 30. Cominar REIT is the most oversold stock in the index followed by Macdonald Dettwiler & Associates Ltd., Cott Corp., and SNC-Lavalin Group Inc.
I picked SNC Lavalin as the focus chart this week primarily because its price remains well above the 200-day moving average and thus still in a longer term uptrend.
The good news is that RSI has been very successful in identifying profitable entry points for SNC Lavalin stock in the past two year.
A buy signal in December 2014 predicted a solid 14-per-cent rally ending in early January 2015. Another RSI buy signal in March 2015 was followed by a 27 per cent price appreciation. Further buy signals in August 2015 and January 2016 also would have turned out well for those buying the stock.
Fundamental analysis should always be completed before making any market transaction – technical analysis is not enough on its own – but I admit that the past success of RSI buy signals in this case makes me more positively disposed to this week's chart at first glance. It's important, however, that the stock price remains above the 200-day moving average.
The list of overbought, technically vulnerable S&P/TSX Composite stocks is shorter this week due to market volatility. Brookfield Business Partners LP is the most overbought stock in the benchmark, followed by Element Financial Corp., Methanex Corp., Freehold Royalties Ltd., and Dollarama.
Follow Scott Barlow on Twitter @SBarlow_ROB.
