The week's most oversold and overbought stocks on the TSX

The S&P/TSX Composite fell 0.7 per cent for the trading week ending with Thursday's close, but the damage in resource and precious metals stocks was far more severe. The list of oversold, technically attractive stocks by Relative Strength Index (RSI) is huge this week at 44 members.

In technical terms, the benchmark's RSI reading of 40 puts it closer to the buy signal of 30 than the overbought RSI sell signal of 70.

I picked Canadian Imperial Bank of Commerce as the focus stock this week primarily because the major banks are rarely oversold. We all know why bank stocks have been weaker – I covered that in a Thursday column that was skeptical (but not bearish) on the banks – but I'm hoping a purely technical perspective on CIBC will provide more perspective.

Two important things are evident from the chart: RSI buy signals have worked extremely well for CIBC stock and the 200 day-moving average has also been extremely important to stock movements in the past two years.

RSI buy signals have been almost uniformly successful. An oversold signal in August 2015 predicted a 19-per-cent rally to Oct. 23 and another on Nov. 2, 2016 was followed by a 23-per-cent jump to March 7, 2017.

The stock is right at its 200-day moving average and that's cause for a bit of concern. Generally, RSI buy signals have been less effective when stocks are trading below this trend line. A sustained drop below the 200=day should give investors caution.

The list of overbought, technically vulnerable S&P/TSX Composite stocks has 20 members this week led by TMX Group Ltd. The list includes a who's who of lower volatility defensive names including Loblaw Co Ltd., Metro Inc., Dollarama Inc., and Waste Connections Inc.

Fundamental research should always accompany technical analysis before any market transactions.

Follow Scott Barlow on Twitter @SBarlow_ROB.