The TSX's most overbought and oversold stocks

Forestry stocks, like the energy sector before them, have made the round trip from market darlings to beaten down also-rans.

The S&P/TSX Composite climbed 1.5 per cent over the past five sessions despite a lot of intraday volatility and now sports a Relative Strength Index (RSI) of 63.9 that is steadily approaching the sell signal of 70.

The rising benchmark results in a larger list of overbought, technically extended stocks this week highlighted by the energy sector. Birchcliff Energy Ltd is the most overbought stock in the benchmark with an RSI of 82.6. Advantage Oil & Gas Ltd, Veresen Inc., Gibson Energy Inc. and Inter Pipeline Ltd., are all among the top ten most extended stocks.

Bank stocks are also well represented in the ranks of the overbought. Bank of Nova Scotia has an RSI of 80.1 and Toronto Dominion Bank is at 72.1.

There are only three stocks that are officially oversold – below the 30 mark - in terms of RSI; B2Gold Corp., Canfor Corp., and Centerra Gold Inc.

As I’ve mentioned previously, RSI doesn’t work very well for gold stocks because the bullion price, which is well beyond the control of the gold mining companies themselves, trumps stock prices as a determinant of market direction.

This leaves Canfor as a potential buying opportunity but there are two problems. One, its RSI of 27 means the stock is not that oversold and could easily go lower. Two, I just wrote a long column on how terribly lumber prices are doing so I’m reticent about touting stocks in the sector.

The S&P/TSX Composite as a whole looks all right thanks to bank stocks but the underlying volatility is cause for concern. A number of energy stocks, for example, have gone from overbought to oversold and back to overbought in a few short weeks.

We are left with a broader market reaching overbought technical levels with few oversold opportunities. As a result, I’m not interested in doing much buying.