The S&P/TSX Composite jumped 4.8 per cent in the five trading days ending with Thursday's close. According to Relative Strength Index (RSI), the index is now in neutral technical territory roughly halfway between the RSI oversold buy signal of 30 and the overbought 70 reading.
The list of oversold stocks is a lot smaller at 11 stocks this week, as we'd expect after the sharp rally. Despite the broad market's strong performance, however, none of the oversold stocks trading below the 30 buy signal are also above their respective 200-day moving averages. I'm only focusing on companies trading above their 200 days on the advice of technical analyst J.C. Parets, who believes technical buy signals work poorly when the stock is in a sustained downtrend.
CCL Industries Inc. is close to oversold levels in terms of RSI with a reading of 36.5, and the stock price remains well above its 200-day moving average. RSI has worked well in uncovering profitable buying opportunities in the stock, most notably when a buy signal in October of 2014 was followed by a 130-per-cent rally (not a typo) to Jan. 5 of this year. More recently, CCL industries stock fell close to oversold levels in August and October 2015 and quickly recovered.
Past performance, as always, is no guarantee of future returns. CCL benefited tremendously from the decline in the loonie – 83 per cent of its revenue is generated in the U.S. and Europe – and the Canadian currency has been showing more signs of stability lately. Investors must complete fundamental research before making any portfolio transactions.
The list of overbought, technically vulnerable stocks contains two members this week. Progressive Waste Solutions received a takeout bid and CGI Group Inc is also overbought. CGI Group was the focus stock in the Jan. 8 version of this weekly technicals post and has rallied 11.4 per cent since. The focus stock won't jump every time like that – far from it – but it's nice to see.
Follow Scott Barlow on Twitter @SBarlow_ROB.
