Look out below – the whole TSX is overbought again

The entire S&P/TSX Composite index is overbought again and investors and traders need to be really, really careful about buying anything in the next few days.

The Relative Strength Index (RSI) for the TSX is now 71.9, above the overbought sell signal of 70. The last time the benchmark was overbought, on January 20, things got a bit ugly – the TSX fell 4 per cent in the following two weeks.

Two stocks stand out among oversold opportunities; Rogers Communications and Sherritt International. Of the two, Rogers is subjectively more interesting. The yield is substantial at 4.3 per cent and the company's stable earnings stream will give the stock a boost if the domestic economy remains sluggish.

Sherritt's performance is in many ways beyond its control. The company's focus on metallurgical coal and copper means the profit outlook is dependent on global growth at a time when China's economy is slowing. (Thermal coal stocks would be more interesting in light of the spike in natural gas prices.)

The energy sector dominates the list of 34 overbought stocks where a correction is most likely. The five most overbought stocks are all from the oil patch; Canadian Natural Resources , Tahoe Resources Inc., Precision Drilling Corp., Veresen Inc., and BirchCliff Energy Ltd.

Energy stocks can stay overbought for a while so there's no need to panic here. I'd just wait a few days before adding to holdings in the sector.

Caveat time! Technical readings like RSI change really fast – they are only based on the past 14 days of performance. On their own, technicals are not sufficient reason to buy a stock – fundamental research needs to be accomplished. Ideally, investors shouldn't buy anything they don't mind getting stuck with for a year or more.