The S&P/TSX Composite is NOT officially oversold according to Relative Strength Index , which surprised me. The RSI reading for the benchmark over the past 14 days (the most widely-used time frame) puts it just above the oversold, buy signal of 30 at 33.5.
The list of oversold TSX stocks is predictably enormous at 39 members. Like last week, however, there are no oversold stocks by RSI still trading above their 200-day moving averages. As we've discussed previously, technical measures like RSI are far less useful for picking lucrative entry points when stocks are in a down trend, trading below the 200 day moving average.
Finding a TSX stock trading still in an uptrend above its 200 day moving average has become a difficult task. Of the 100 most oversold companies on the S&P/TSX Composite, there are only five stocks in an uptrend. I picked Enghouse Systems Ltd., a software developer for telecommunications providers. This is not a recommendation – the stock is still expensive – but the technical profile of the company is interesting enough to warrant further research.
Enghouse Systems stock has performed extremely well over the past two year, roughly doubling, and any of the RSI buy signals would have been very profitable over the period. Most recently, an oversold reading in August 2015 was followed by a terrific 62-per-cent rally to Dec. 30.
The stock has also consistently bounced off the 200-day moving average and continued its rally. Enghouse has been dropping along with the market in 2016, but remains just under $7 above the 200-day. It might test the trendline again, but if it holds (does not go below the 200-day), recent history suggests it could rally significantly.
Fundamental research is, as always, vital to complete before any market transaction.
The table of oversold TSX stocks by RSI has been edited so it fits on this page. Air Canada is the most oversold stock in the benchmark and competitor Westjet is also lower down on the list.
CIBC is perhaps the biggest surprise. Domestic banks are rarely oversold, but CIBC is the third most oversold stock in the benchmark. Laurentian Bank and Canadian Western Bank are also represented.
Canadian Pacific Railway is also making a rare appearance on the oversold list. North American transport stocks have been under pressure for a while, hurt by declining commodity and factory activity on both sides of the border.
As for overbought, technically vulnerable domestic stocks, there's only one on the S&P/TSX Composite. Great Canadian Gaming Corp. is barely overbought with an RSI reading of 70.1.
Follow Scott Barlow on Twitter @SBarlow_ROB.
