The S&P/TSX Composite was flat for the trading week ending with Thursday's close (it declined 0.03 per cent, if you want to get nitpicky).
The benchmark remains in technically neutral territory, according to Relative Strength Index (RSI) , with a reading of 53.9 that is roughly mid-way between the buy signal of 30 and sell signal of 70.
The list of oversold technically attractive index constituents by RSI is dominated by energy stocks.
Construction equipment maker Stella Jones Inc. is the most oversold company in the index but it is closely followed by Spartan Energy Corp., Crew Energy Inc., Parex Resources Inc., Crescent Point Energy Corp., Seven Generations Energy Ltd. and Baytex Energy Corp..
I chose Crescent Point Energy Corp. as the focus chart this week. In normal circumstances, I avoid commodity stocks in this report because the technical analysis is often overshadowed by the commodity price as a driving factor behind stock price movements. Crescent Point has, however, been such a broker favourite for so long we'll take a look.
The stock has spent much of the past 24 months trading below the 200-day moving average trend line. As we've seen previously, RSI buy signals are less effective when this is the case. For Crescent Point, decent rallies followed buy signals in March of 2015 and August 2015, but significant declines occurred right after. More recently, a September 2016 RSI buy signal didn't help much at all – an anemic rally was just a brief pause before an 11-per-cent drop.
There could very well be fundamental reasons to buy Crescent Point stock, and fundamental research should be completed before any market action, but technical history suggests that investors shouldn't be confident of a strong upsurge until it crosses the 200 day moving average.
This week's list of overbought, technically vulnerable stocks by RSI is a mixed bag with a heavy utility component. Milestone Apartment REIT is the most overbought asset in the S&P/TSX Composite followed by Ivanhoe Mines Ltd., Cogeco Communications Inc., Hydro One Ltd., Quebecor Inc., Bombardier Inc., and TransAlta Renewables Inc.
Follow Scott Barlow on Twitter @SBarlow_ROB.
