The S&P/TSX Composite index climbed 0.9 per cent in the five trading days ending with Thursday's close. According to Relative Strength Index (RSI), my preferred measuring stick for technical analysis, the domestic benchmark is in neutral territory at 48.8, about halfway between the buy target of 30 and the sell target of 70.
There are 11 TSX companies trading with RSI readings below the 30-level that implies the stocks are oversold and prices are due for a bounce. For different reasons, I don't want to focus on any of them.
Selfishly, I picked Blackberry Inc. for the focus chart this week even if it's not technically oversold using RSI. My interest in the Blackberry's fundamental outlook is increasing so it's convenient for me to take a look at its technical trading history to complement ongoing fundmanental research.
Most investors equate their future with handset sales, but an expansion of the company's secure wireless network is, from what I've read so far, far more likely. The sharp increase in network hacking – highlighted by the recent invasion of the U.S. government online employee records – makes Blackberry's security features attractive to both public and private firms.
Thankfully, RSI has frequently identified profitable buy and sell levels for Blackberry in the past 24 months. The caveat is that in June and July of 2013, and October of 2013, those that bought Blackberry had to be patient – it took a while before the stock bounced. The good news is that the subsequent rallies were significant – 27 per cent and 82 per cent respectively.
RSI buy signals also effectively forecast rallies in April of 2014, October 2014 and March 2015.
As always, investors must combine technical analysis with fundamental research. Technical tools like RSI are helpful, but insufficient on their own.
This week's overbought list of stocks at risk of a temporary correction is small at three members. (I found this a bit surprising – the list got smaller even though the benchmark climbed almost a full percentage point.) The three overbought TSX stocks are led by Alimentation Couche-Tard B , Cogeco Cable Inc. and Canfor Corp.
Follow Scott Barlow on Twitter @SBarlow_ROB.
