Skip to main content
The Globe and Mail
Support Quality Journalism
The Globe and Mail
First Access to Latest
Investment News
Collection of curated
e-books and guides
Inform your decisions via
Globe Investor Tools
Just$1.99
per week
for first 24 weeks

Enjoy unlimited digital access
Enjoy Unlimited Digital Access
Get full access to globeandmail.com
Just $1.99 per week for the first 24 weeks
Just $1.99 per week for the first 24 weeks
var select={root:".js-sub-pencil",control:".js-sub-pencil-control",open:"o-sub-pencil--open",closed:"o-sub-pencil--closed"},dom={},allowExpand=!0;function pencilInit(o){var e=arguments.length>1&&void 0!==arguments[1]&&arguments[1];select.root=o,dom.root=document.querySelector(select.root),dom.root&&(dom.control=document.querySelector(select.control),dom.control.addEventListener("click",onToggleClicked),setPanelState(e),window.addEventListener("scroll",onWindowScroll),dom.root.removeAttribute("hidden"))}function isPanelOpen(){return dom.root.classList.contains(select.open)}function setPanelState(o){dom.root.classList[o?"add":"remove"](select.open),dom.root.classList[o?"remove":"add"](select.closed),dom.control.setAttribute("aria-expanded",o)}function onToggleClicked(){var l=!isPanelOpen();setPanelState(l)}function onWindowScroll(){window.requestAnimationFrame(function() {var l=isPanelOpen(),n=0===(document.body.scrollTop||document.documentElement.scrollTop);n||l||!allowExpand?n&&l&&(allowExpand=!0,setPanelState(!1)):(allowExpand=!1,setPanelState(!0))});}pencilInit(".js-sub-pencil",!1); // via darwin-bg var slideIndex = 0; carousel(); function carousel() { var i; var x = document.getElementsByClassName("subs_valueprop"); for (i = 0; i < x.length; i++) { x[i].style.display = "none"; } slideIndex++; if (slideIndex> x.length) { slideIndex = 1; } x[slideIndex - 1].style.display = "block"; setTimeout(carousel, 2500); }

Relative Strength Index (RSI), my preferred short-term technical indicator, provided warning of the S&P/TSX Composite's 1.8-per-cent decline in the week ending with Thursday's close. The RSI reading for the benchmark had been butting up against the RSI sell signal of 70 for the past two weeks, a sign of market over-exuberance and froth.

The good news for investors is that RSI changes quickly and the index now shows a reading of 48.6 that is roughly half way between the sell signal of 70 and the oversold, buy signal of 30. This isn't much help in terms of predicting the market's next move, but, at least, it isn't showing danger signs.

There are still relatively few index constituents, five, trading in attractive, oversold RSI territory below 30. Fairfax Financial Holdings Ltd. is the most oversold stock in the benchmark followed by Home Capital Group Inc., Intact Financial Corp., Enerflex Ltd., and Blackberry Ltd.

Home Capital is the focus stock this week, primarily because it's trading above its 200-day moving average. As we've seen, RSI buy signals are far more effective when stocks are not in long term down trends as indicated by the 200-day.

The pattern in the chart once again shows the importance of moving averages. RSI buy signals have successful identified entry points for Home Capital when, as in September 2014, it was above the 200 day. Buy signals didn't work well, or only temporarily, when the stock was below the trend line between August 2014 and February 2016.

Home Capital's stock price is just above the 200-day now, and, for it to be technically interesting at all, it has to stay above that red line on the chart. If it bounces of the line and heads higher, RSI suggests it might be a decent size positive move.

RSI sell signals - readings above 70 - have worked well as warnings for holders of the stock, routinely followed by significant corrections.

As always, investors should complete fundamental analysis before buying any market asset.

The table of overbought, technically vulnerable TSX stocks by RSI is smaller this week as we'd expect after a pullback. Takeout target Manitoba Telecom Services Inc. is the most overbought company followed by Seven Generations Energy Ltd., TMX Group Ltd., Superior Plus Corp., and Bombardier Inc.

Follow Scott Barlow on Twitter @SBarlow_ROB.

Report an error Editorial code of conduct
Due to technical reasons, we have temporarily removed commenting from our articles. We hope to have this fixed soon. Thank you for your patience. If you are looking to give feedback on our new site, please send it along to feedback@globeandmail.com. If you want to write a letter to the editor, please forward to letters@globeandmail.com.

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to letters@globeandmail.com. Readers can also interact with The Globe on Facebook and Twitter .

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to letters@globeandmail.com. Readers can also interact with The Globe on Facebook and Twitter .

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff.

We aim to create a safe and valuable space for discussion and debate. That means:

  • Treat others as you wish to be treated
  • Criticize ideas, not people
  • Stay on topic
  • Avoid the use of toxic and offensive language
  • Flag bad behaviour

Comments that violate our community guidelines will be removed.

Read our community guidelines here

Discussion loading ...

Latest Videos

To view this site properly, enable cookies in your browser. Read our privacy policy to learn more.
How to enable cookies