The S&P/TSX Composite took a bit of a breather during the trading week ending with Thursday’s close, finishing roughly flat (up 0.04 per cent). The benchmark stands 9.9 per cent higher for the year. According to Relative Strength Index (RSI), the index is just barely in technically neutral territory, with a reading of 68 that’s only two points from the RSI sell signal and nowhere close to the oversold RSI buy signal of 30.
There are only two technically attractive, oversold index members by RSI this week – Sierra Wireless Inc. and SNC-Lavalin Group Inc. We featured SNC last week, which doesn’t leave much choice except to focus on Sierra Wireless.
RSI buy signals have had a mixed record in identifying profitable entry points for Sierra Wireless stock in the past 36 months. A buy signal in June of 2016 was followed by a reasonable 11.2-per-cent rally before the end of July, 2016, but another buy signal in August, 2016, was followed by a multi-month period of sideways price movement.
A series of buy signals in August, 2017, presaged a 13-per-cent rally, but the stock headed immediately southwards again in November. February of 2018 saw the most successful RSI buy signal as the price climbed 35 per cent by the end of September.
The stock was also oversold in late December, 2018, and rose 16 per cent to Feb. 13 of this year. The problem is that holders of the stock got little warning before the price then plummeted to current levels.
This is a treacherous one. ESI buy signals have worked okay, but rallies have consistently been followed by rapid, severe downward moves.
There could be a solid fundamental story behind Sierra Wireless – fundamental research should always be completed before any market transaction – but the chart on its own makes it look too volatile to trade based on RSI.
There are 26 overbought, technically vulnerable S&P/TSX Composite stocks trading above the RSI sell signal this week. Firstservice Corp. was the most overbought stock in the index followed by Choice Properties REIT, Air Canada, Constellation Software Inc., First Capital Realty Inc. and Brookfield Property Partners.