The S&P/TSX Composite finished the Thursday-to-Thursday period more or less where it started with a miniscule gain of 0.3 per cent. The benchmark's Relative Strength Index (RSI) reading of 55 is in neutral territory between the RSI buy signal of 30 and the sell signal of 70.
Canadian Pacific Railway Ltd. is right on the border of oversold territory with an RSI of 30.4 and, because it's so widely held, it is the focus stock this week.
The technical outlook for CP is made more difficult by the fact the stock is trading below its 200-day moving average. As I've noted previously, RSI buy signals work far less well when a stock is trading in an established downtrend below the 200-day.
It is encouraging, however, that the stock's most recent RSI buy signal, in mid-January of 2016, did signal a profitable buying opportunity despite the downtrend. The same thing happened in August 2015, where a sub-30 RSI level was followed by a 14-per-cent rally. The RSI buy signal in December 2015 was far less successful. CP stock managed a small rally before heading sharply south immediately thereafter.
Basic investing discipline implies that investors and traders should wait until Canadian Pacific stock regains the 200-day moving average before considering buying. The good news is that the current stock price is not far below the 200-day moving average of $180.80.
The number of overbought, technically vulnerable benchmark stocks by RSI has dropped from 20 to nine. Ritchie Brothers Auctioneers Inc. is the most technically extended stock in the index, followed by Seven Generations Energy Ltd., Sierra Wireless Inc., CAE Inc., and Dorel Industries Inc..
The weekly reminder still applies – technical analysis is very helpful but investors should complete fundamental research before buying or selling any investment.
Follow Scott Barlow on Twitter @SBarlow_ROB.