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TMX Group Inc. signage is displayed on a screen in the broadcast center of the Toronto Stock Exchange (TSX) in Toronto, Ontario, Canada, on Monday, Oct. 31, 2011. A takeover of Toronto Stock Exchange owner TMX Group Inc. by a group of Canadian banks and pension funds is "significantly" more likely to succeed after TMX's board endorsed the C$3.73 billion ($3.73 billion) offer, analysts said. Photographer: Norm Betts/Bloomberg

Norm Betts/Bloomberg

Friday's a good day to point out the most technically overbought and oversold stocks in the domestic market. Aggressive traders can compare the results with their own chart work and act accordingly. More patient investors can combine the oversold list with fundamental research over the weekend in search of long-term opportunities.

It changes fast, but right now, the overbought list is dominated by finance and energy stocks. There are a few gold and gold-related stocks reading oversold, but otherwise no real discernible sector trend.

The two tables show all S&P/TSX Composite constituents with a relative strength index either above 70, the level commonly associated with overbought stocks due for a short term pullback, and 30, the oversold level.

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National Bank is the most overbought stock in the index so I've charted its past performance against RSI as an example of how it works.

The chart shows the usual tendencies – when National stock goes above 70, it tends to fall back in the weeks following. After the RSI falls below 30 (which doesn't happen often), the stock tends to rally.

In the last four years, using daily data, the average three-month return from National Bank stock is 0.6 per cent after a reading of 70 and 3.4 per cent after an RSI of 30.

Empire Co. Ltd is right on the border of oversold stocks according to RSI at 30.02. Gold stocks are represented by Aurico Gold Inc. and Argonaut Gold Inc. The sub-30 category rounds out with Dundee Corp, Bell Aliant Inc., Niko Resources Ltd, Emera Inc., and Reitmans (Canada) Ltd.

Just because a stock is oversold doesn't mean a jump higher is guaranteed, so any investor attempting to play a bounce needs to look for another catalyst, or at least be sure that the stock is not down for reasons that will keep it underwater.

Scott Barlow is a contributor to Globe Unlimited. Click here to read more of his work, and follow Scott on Twitter at @SBarlow_ROB.

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