The S&P/TSX Composite eased higher by 0.7 per cent in the week ending with Thursday's close, and the entire benchmark is now bumping up against overbought, technically vulnerable territory according to Relative Strength Index (RSI).
The S&P/TSX composite RSI level is 67.2, just below the sell signal of 70.
I'd love to point out technically attractive, oversold TSX stocks, but there aren't any. Not one of the 234 stocks in the benchmark is trading below the RSI buy signal of 30.
I picked the S&P/TSX Real Estate Investment Trust Total Return index for the focus chart this week in part out of pure curiosity – I wondered how accurate technical signals like RSI would be for such a credit-sensitive market sector. In addition, there are a number of REITs – Dream Office REIT, Riocan REIT and Boardwalk REIT, that are close to oversold territory.
As it turns out, RSI buy signals have been very effective for the REIT sector in the past two years. Sub-30 readings kicked off significant rallies in December 2014, March 2015, August 2015 and January 2016. RSI buy signals were broadly effective even when the index fell below the 200-day moving average, which is reasonably rare.
RSI sell signal were also broadly useful, signalling pullbacks in August 2014, January 2015 and most recently in May 2016.
The REITs index as a whole is currently in neutral territory with an RSI reading of 50 – halfway between the 30 buy signal and 70 sell signal. That's not much help for investors at the moment, but the two-year history suggests that market participants can be reasonably confidently in the short term signals provided by RSI where the REIT sector is concerned.
As always, technical measures like RSI are not, on their own, enough reason to buy or sell an investment. Fundamental analysis should always be completed before market transactions.
There are 18 S&P/TSX Composite stocks trading in overbought, technically vulnerable territory this week. Most overbought constituents are Open Text Corp., Enghouse Systems Ltd., Ritchie Brothers Auctioneers Inc., Capital Power Corp., and TransCanada Corp.
Follow Scott Barlow on Twitter @SBarlow_ROB.
