A strong week for domestic equity markets saw the S&P/TSX Composite jump 2.0 per cent for the week ending with Thursday's close. Technically speaking, the benchmark as a whole is in neutral territory according to Relative Strength Index (RSI), but the reading of 59.4 is much closer to the RSI sell target of 70 than the buy signal of 30.
The market rally leaves only one S&P/TSX Composite stock in officially oversold territory, Bombardier Inc., so that is the focus chart for the week.
Bombardier is trading with its most oversold reading in the past two years and importantly, right at its 200 day moving average.
RSI's ability to identify lucrative buying opportunities for Bombardier stock has been mixed in recent years. An oversold reading in January 2015 was followed by a very small rally and then an extended period of flat performance.
The stock was oversold throughout July and August 2015 and a 58-per-cent rally followed – big percentage gains are much easier when a stock is trading at $1.19. Like almost every stock in the benchmark, Bombardier was hugely oversold in early 2016 and rallied strongly, in this case by 160 per cent from February 11 to May 10.
The 200-day moving average is likely to play a big technical role for Bombardier stock in the next few weeks. Investors should be extremely cautious if it goes below the trendline, but can be optimistic if it bounces off and heads higher.
Above all, I think only the most aggressive, risk tolerant market participants should play this stock. Fundamental analysis, which in this case includes careful study of the federal government intentions with regard to the company, should always be completed before buying or selling any investment.
The list of overbought, technically vulnerable stocks in the TSX this week has 12 members, led by BRP Inc., Great Canadian Gaming Corp., Saputo Inc., Parkland Fuel Corp., Element Financial Corp., and Sleep Country Canada Holdings Inc. are close behind.
Follow Scott Barlow on Twitter @SBarlow_ROB.
