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The overbought list is huge, the oversold list tiny and the entire S&P/TSX Composite is now in the technical danger zone. Investors with a shorter-term time horizon might want to hold off for a few days, things are looking decidedly frothy.

The S&P/TSX Composite's 2.3 per cent return over the past five trading days (Thursday to Thursday) has pushed it well over the Relative Strength Index (RSI) sell signal of 70. This isn't cause for mass panic. I'm using the 14-day RSI which, although it's the most widely used RSI measure, can change extremely quickly. Just because the market's overbought now doesn't mean it can't be oversold by this time next week.

It is, however, time for caution. Like last week, I've used the S&P/TSX Composite as the focus chart. Previous periods when the benchmark's RSI climbed above 70, January 20 and July 19 of 2013 for example, have signalled declines in performance.

The table of oversold stocks makes it clear why the domestic benchmark is overbought. The list is chock full of large cap companies (the TSX is a cap-weighted benchmark so bigger companies drive performance much more than small and medium caps) like Canadian Pacific Railway Ltd., CIBC, BMO, Bank of Nova Scotia and Encana Corp. Investors looking to add these stocks to their portfolio should wait for a better entry point.

Manitoba Telecom Services remains oversold despite a 1.25 per cent return over the past five trading days. A horrendous 24 per cent beating for Wi-Lan Inc. sees that stock as a new entrant on the oversold list. Analysts have yet to drop forward earnings guidance on Wi-Lan and the current, intriguing forward price to earnings ratio of 15 times is grounds for further research.

The usual warnings apply. Technical analytics like RSI are crude tools. Because they completely ignore fundamentals, they are not sufficient grounds for investment on their own. Technicals are, however, a proven method for selecting buy and sell points once background research is done.

To view the tables on mobile devices, click here:
Overbought: http://bit.ly/17NZw1i
Oversold: http://bit.ly/1chkBc9

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