The S&P/TSX composite jumped 1.1 per cent for the trading week ending with Thursday's close. The strength was focused in energy and precious metals stocks but rally participation was broad enough to leave little in the way of oversold, technically attractive benchmark stocks to look at this week.
The index as a whole has a Relative Strength Index (RSI) reading of 55.5 – still in the neutral range, but a bit closer to the RSI sell signal of 70 than the oversold buy signal of 30.
There are only two oversold index member stocks this week, Boardwalk REIT and Uni-Select Inc. Both companies have been frequent participants on the oversold list in recent weeks but have yet to manage a sustained price rally. For this reason, I didn't want to feature them as the focus chart.
I picked an overbought stock, Shopify Inc., even though it has less than 24 months of performance history. The shorter run, however, has been remarkably successful as the stock price has more than quadrupled.
Shopify has only been oversold once, in May of 2016, and any investor who heeded the buy signal should pat themselves on the back. The stock price has soared 430 per cent since that point.
With performance like this, there has obviously been no bad time to buy Shopify. But RSI sell signals like the one we're seeing now can still be useful. In February, March and May of 2017, RSI sell signals did successfully warn of small corrections and, when the sell signal faded, the stock restarted its path sharply higher. The benefits have been marginal but RSI sell signals should be heeded by potential buyers of Shopify.
Shopify stock is trading at 8034.6 times forward earnings (that's not a typo) according to Bloomberg so it's not suitable for investors lacking high risk tolerances. As always, fundamental research is vital and should be completed before making any market transaction.
There are 17 overbought, technically vulnerable S&P/TSX composite constituents this week led by Centerra Gold Inc. and Great Canadian Gaming Corp. Energy stocks figure prominently on the overbought list which includes Paramount Resources Ltd., Vermilion Energy Inc., ARC Resources Ltd., and Nuvista Energy Ltd.