This article was published more than 6 years ago. Some information may no longer be current.
The S&P/TSX Composite climbed 0.54 per cent for the trading week ending with Thursday's market close, and the benchmark remains in frothy, overbought territory according to Relative Strength Index (RSI).
The index's RSI reading of 70.2 is just over the sell signal of 70.
The benchmark constituents trading at oversold, technically attractive levels below the RSI buy signal of 30 are dominated by precious metals and energy stocks.
Eldorado Gold Corp is the most oversold stock in the index, and it's joined by Advantage Oil and Gas Ltd., Barrick Gold Corp., Peyto Exploration and Development Corp., Tourmaline Oil Corp and Bonavista Energy Corp.
Non-resource oversold companies include Corus Entertainment Inc., DHX Media Ltd., and Valeant Pharmaceuticals International.
I'm generally reluctant to feature commodity stocks in this column because their prices are often determined more by commodity markets than individual technical outlooks. So for this week's focus chart I picked an overbought company, engineering firm WSP Global Inc., in an attempt to assess how concerned existing holders of the stock should be about overbought conditions.
The short answer here is that investors should take WSP Global's current RSI sell signal very seriously – they've been extremely effective in predicting corrections in the stock price in the past 24 months. An April 2016 sell signal was followed by a small 5.5-per-cent price decline but another RSI sell signal in November predicted a more significant 9.4-per-cent drop in the stock.
In 2017, an April sell signal didn't amount to much, a marginal decline followed. A late June sell signal however, presaged an 11.0-per-cent decline in WSP Global.
The stock is now more overbought than at any point in the past two years. Recent performance history strongly implies investors should avoid buying more of the stock until RSI readings at least fall below 70. As always, fundamental research should accompany any market transaction.
Led by Bank of Montreal, the list of overbought, technically vulnerable TSX stocks is enormous at 38 members. Altus Group Ltd., Open Text Corp., Finning International Inc., Constellation Software Inc. and National Bank join BMO among the most overbought stocks in the index.