The S&P/TSX Composite Index confronted investors with a 1.5-per-cent decline for the trading week ending with Thursday's close. The domestic benchmark is now in technically neutral territory with a Relative Strength Index (RSI) reading of 47.1 that is marginally closer to the RSI buy signal of 30 than the sell signal of 70.
There are 11 oversold, technically attractive benchmark constituents this week. The list is led by Dominion Diamond Corp., but otherwise dominated by precious metals stocks. Nevsun Resources Ltd., Asanko Gold Inc., Semafo Inc., IAMGOLD Corp., Yamana Gold Inc., Eldorado Gold Corp. and Agnico Eagle Mines Mines Ltd. are all featured. The energy sector is represented by Bonavista Energy Corp. which is also oversold.
I picked this week's focus stock, real estate logistics firm Colliers International Group Inc., from the overbought, technically extended list. The stock is trading well above the RSI sell signal of 70 with a current reading of 90.
The chart illustrates reasons for short-term concern for holders of Colliers International. RSI sell signals for the stock have consistently predicted corrections in the past 24 months. A sell signal in August 2015 was followed by a 14-per-cent decline and another RSI warning in late October predicted a more serious 33-per-cent drop.
Colliers was overbought by RSI in August 2016 and once again a correction followed. The price fell 20 per cent between Aug. 8 and Nov. 16.
Investors should remember that RSI is a short term indicator and changes quickly – and overbought stock can become and oversold stock in a matter of days. Where Colliers International is concerned, RSI indicates that the price is extended and investors should wait for more technically neutral conditions before buying the stock.
As always, fundamental analysis should be completed before any market transaction.
There are 12 names on the full list of overbought index constituants according to RSI. Waste Connections Inc., Sierra Wireless Inc., West Fraser Timber Co. Ltd and Algonquin Power and Utilities Corp. are among the notable names.
Follow Scott Barlow on Twitter @SBarlow_ROB.
