The S&P/TSX Composite rose 0.9 per cent for the five trading days ending with Thursday's close, although it felt a lot worse than that for holders of precious metals and energy stocks. The Canadian benchmark is now exactly flat relative to the beginning of the year.
In terms of technical, the benchmark is firmly in neutral territory with a Relative Strength Index reading of 46, mid way between the buy signal of 30 and the sell signal of 70.
There are now 33 stocks that are oversold according to RSI with the list dominated by oil producers and gold miners. Like last week, I want to avoid using these categories for the focus chart because it requires a short-term forecast on crude and precious metals prices that I'm not willing to make.
Canfor Corp is this week's focus stock. Even though profits are also based on a commodity, lumber prices have been far less volatile than oil and gold.
RSI has worked very well in uncovering entry points for Canfor stock since the beginning of 2014. An oversold reading in April 2014 signalled a rally, albeit a small one. An RSI reading of 26 in October was far more successful as Canfor rallied 33 per cent in the next six weeks. The oversold reading in March 2015 was less successful although patient investors were rewarded during a May to mid-July rally.
The usual caveats apply. Past performance patterns may not be repeated and extensive fundamental research is required before any transaction, particularly in the current weak market environment.
There are 13 stocks on the overbought, technically vulnerable list this week, led by Toromont Industries. Open Text Corp, which was oversold only a few short weeks ago, continues its furious rally – rising more than 20 per cent in the past five trading days.
Defensive stocks are well represented as we'd expect given market volatility. Cash-heavy Onex Corp., and staples Loblaw Companies Ltd. and George Weston are also oversold according to RSI.
Follow Scott Barlow on Twitter @SBarlow_ROB.
