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The S&P/TSX Composite is now technically overbought and vulnerable to a pause or correction in the short term, according to Relative Strength Index (RSI).

The benchmark climbed into frothy territory with a 1.9-per-cent weekly return for the trading week ending with Thursday's close. The RSI reading is now 71.4, above the sell signal of 70.

In terms of individual index constituents, there are only three stocks trading at attractive oversold levels below the RSI buy signal of 30. TransAlta Renewables Inc. is the most oversold stock in the index, followed by Corus Entertainment Inc. and Detour Gold Inc..

The focus chart this week uses the benchmark itself in an attempt to assess how concerned investors should be about a significant correction. The good news is, probably not much.

RSI sell signals (readings above the RSI sell signal of 70 represented by the light blue line on the chart) have been effective in predicting short-term pauses or declines in the S&P/TSX Composite. A sell signal in February 2015 was followed by a 4.0-per-cent drop and another sell signal in April 2015 presaged a much bigger fall of 23 per cent to January of 2016.

RSI sell signals in March and April 2016 predicted insignificant pauses in index performance. The sell signal in early June 2016 forecast a brief 2.5-per-cent correction. The last half of 2016 saw a few sell signals that the market basically ignored, not even slowing its march higher.

The most recent RSI sell signal was in February 2017 but the ensuing path of benchmark performance was only marginally weaker, and not for long.

The current sell signal coincided with the index rising above its 200 day moving average trendline, which is very positive and potentially indicative of a sustained uptrend (if it can stay above the trendline).

The past three years shows that RSI sell signals should be taken seriously as a 'wait and see' indicator. For stocks that dominate index performance, investors should wait to add significant new positions for as long as overbought conditions persist. RSI is a very short term indicator, and the numbers can change quickly from overbought to oversold.

As always, fundamental analysis could provide a different story for individual opportunities, and investors should always complete fundamental research before making any market transactions.

The list of overbought index stocks is huge this week at 36 members, which we'd expect given strong benchmark returns. Toromont Industries Ltd. is the most overbought stock in the index followed by Cenovus Energy Inc., Canadian Western Bank, Great Canadian Gaming Corp., TD Bank and Paramount Resources Ltd.

RSIPrice200DMAReturn 1W %Return YTD %PE Ratio TTMPE Ratio Fwd
RNW-TTRANSALTA RENEWABLES INC25.4548513.6615.00275-4.073034-0.943272331.5257926412.93560606
CJR.B-TCORUS ENTERTAINMENT INC-B SH26.5889212.8313.1936-6.2819588.58696313.4897995111.38420586
DGC-TDETOUR GOLD CORP29.7112514.6116.6673-9.141791-20.12029152.505035717.53087177
RSIPrice200DMAReturn 1W %Return YTD %PE Ratio TTMPE Ratio Fwd
TIH-TTOROMONT INDUSTRIES LTD81.5176857.6146.2196.9029537.649332.0156408224.91782007
CVE-TCENOVUS ENERGY INC80.4515512.4514.2003512.06121-37.932433.1657724151.65975104
CWB-TCANADIAN WESTERN BANK79.981053228.712753.3925698.0615813.2127450111.66180758
GC-TGREAT CANADIAN GAMING CORP78.7095535.0525.65242.90663540.3122523.95529568N/A
TD-TTORONTO-DOMINION BANK78.4520169.0165.95922.5865916.99084113.0004939712.02893498
POU-TPARAMOUNT RESOURCES LTD -A78.4408824.9918.640966.02460847.480617.343647677N/A
NVA-TNUVISTA ENERGY LTD78.184957.946.52626.57718114.4092227.2791302934.22413793
WFT-TWEST FRASER TIMBER CO LTD77.7831772.7557.3977.36422751.8972712.2176689816.4816493
IMO-TIMPERIAL OIL LTD76.9984839.0340.45613.063111-15.4206651.9250708823.97420147
EFX-TENERFLEX LTD76.8303918.417.91138.6828129.50603518.9193937313.80345086
VET-TVERMILION ENERGY INC76.6830645.9447.56682.339051-15.5889380.44350503866.7924528
LB-TLAURENTIAN BANK OF CANADA76.6543458.7756.47423.3954964.0368169.9629927399.412235746
CFP-TCANFOR CORP76.5243323.7418.49944.03155155.4682412.1313702620.86115993
ECA-TENCANA CORP76.1852413.9914.238759.897879-10.8400740.2047034227.25358418
PJC.A-TJEAN COUTU GROUP INC-CLASS A75.6663523.221.14553.06530412.9177622.3519240621.82502352
POT-TPOTASH CORP OF SASKATCHEWAN75.4239823.7522.985156.359158-0.51508431.6577171133.37933971
OSB-TNORBORD INC75.1661648.4839.01434.95778346.1117913.3199991311.05942642
LNR-TLINAMAR CORP75.1137173.8562.35552.78357728.732318.5721729368.83478885
KEY-TKEYERA CORP74.7125538.8839.18836.234685-0.840139726.6013681624.16407707
TCW-TTRICAN WELL SERVICE LTD74.593994.334.145259.620254-5.86956580.6827272619.7716895
PSK-TPRAIRIESKY ROYALTY LTD74.4600432.3629.87771.7610063.01182989.78962317118.5347985
CNQ-TCANADIAN NATURAL RESOURCES73.7736142.2140.731655.0522650.679506761.6972654834.28919578
MTL-TMULLEN GROUP LTD73.7722617.2216.655354.617254-11.859437.4610038224.0167364
AGU-TAGRIUM INC73.53735132.54128.11985.693780.0654547123.1678859820.1891181
MG-TMAGNA INTERNATIONAL INC72.9790565.1158.823754.88079913.759999.3928521528.468133214
SU-TSUNCOR ENERGY INC72.9341342.2241.164251.417247-1.55755432.3264567934.77759473
RRX-TRAGING RIVER EXPLORATION INC72.597597.688.524155.494505-27.2727330.1474391514.38202247
PPL-TPEMBINA PIPELINE CORP72.4826242.8342.34242.9567315.31935432.8217356319.1804747
AC-TAIR CANADA72.2914426.416.550610.8777893.123637.582060625.713049124
CP-TCANADIAN PACIFIC RAILWAY LTD72.05721206.11200.8366.3848468.15705218.7551908117.06491141
ERF-TENERPLUS CORP71.9194812.411.217557.545533-1.95727527.4086443715.57788945
TSX-IS&P/TSX COMPOSITE INDEX71.4446915454.9215383.951.8652993.10392119.6763572317.41368411
TOG-TTORC OIL & GAS LTD71.058856.186.33219.187279-23.24772N/A167.027027
WEED-TCANOPY GROWTH CORP70.6805910.479.50274.07554714.55142N/AN/A
TSGI-TSTARS GROUP INC/THE70.6760624.5821.5927515.3449129.3003718.643169829.205858441
BNS-TBANK OF NOVA SCOTIA70.5334479.3377.588752.7590678.18829912.2514444611.65589186
HSE-THUSKY ENERGY INC70.4225715.315.518753.518268-6.077348N/A566.6666667

Source: Bloomberg/Scott Barlow