The S&P/TSX composite eased lower by 0.14 per cent for the trading week ending with Thursday’s close and the benchmark stands 3.7 per cent higher for 2018 so far. In terms of technical analysis, the TSX’s Relative Strength Index level of 60.2 puts it in the neutral range although closer to the overbought sell signal of 70 than the RSI oversold buy signal of 30.
There are five oversold, technically attractive index constituents according to RSI this week. Mag Silver Corp. is the most oversold stock in the benchmark, followed by Corus Entertainment Inc. (B), Centerra Gold Inc., First Capital Realty Inc. and Aurora Cannabis Inc.
I picked Fairfax Financial for the focus chart this week even though it’s lurking just outside officially oversold territory with an RSI of 33.
An actual buy signal for Fairfax, if it comes, would be very interesting for potential buyers of the stock based on recent history. Over the past 24 months, RSI buy signals have provided lucrative entry points for Fairfax when they’ve come in pairs.
The stock price provided two RSI buy signals in November of 2016 and a 13-per-cent rally followed to Dec. 21 of the same year (although a prolonged slide followed shortly thereafter). In June of 2017, a series of buy signals predicted a 28-per-cent rally to the end of November.
June, 2018, produced an “almost buy signal” – and RSI of 31 – and was followed by an official buy signal in early February. The stock priced jumped 25 per cent to mid-June.
The most interesting thing that could happen here is for Fairfax to generate an RSI buy signal, rally a bit, and then produce another buy signal. This pattern has been promising in the past.
As always, investors should verify any technical conclusions with fundamental research.
There are 12 overbought, technically vulnerable index stocks according to RSI this week. Rogers Communications Inc (B) is the most extended stock in the benchmark, followed by Colliers International Group, Altagas Ltd., Genworth MI Canada Inc., CGI Group Inc. (A), and Descartes Systems Group.