The S&P/TSX Composite was exactly flat for the trading week ending with Thursday's close and stands 16.39 per cent higher year to date. According to Relative Strength Index (RSI), the benchmark is in technically neutral territory. The current RSI reading of 57.2 is sneaking up on the sell signal of 70 and well above the buy signal of 30.
There are only five S&P/TSX Composite constituents trading at officially oversold, technically attractive RSI levels below 30: DH Corp., MacDonald Dettwiler and Associates Ltd., Intertain Group Ltd., Corus Entertainment Inc. and FirstService Corp. None of these, however, are trading above their respective 200-day moving averages and RSI buy signals have proven less effective when this is the case.
I picked the S&P/TSX Real Estate Investment Trust Index as the focus chart this week. The sector is not oversold at the moment, but I'm expecting volatility because of rising bond yields that make REIT distribution yields less attractive.
The most important technical news on the sector is that the index fell below it's 200-day moving average this week for the first time since March. This doesn't necessarily mean REITs have entered a persistent downtrend – it could pop right back above the trendline – but it is cause for concern in light of a potential surge in bond yields.
AS for RSI buy signals, their success has been generally ok, but mixed overall. RSI buy signals in December 2014 and March 2015 worked well – they were followed by rallies of 13 per cent and five per cent respectively. The index fell below the 200 day moving average in May of 2015, however, and buy signals didn't work as well. Small rallies followed, but the index headed south immediately thereafter in most cases.
Overall, income-oriented investors looking to add exposure to the REIT sector should wait until the index is firmly above the 200 day moving average in my opinion.
There are eight S&P/TSX Composite stocks trading in the overbought, technically vulnerable zone this week. Suncor Energy Inc. is the most overbought stock in the index followed by TD Bank, Celestica Inc., Bank of Nova Scotia, Mullen Group Ltd. and Great-West Lifeco Inc.
As always, investors should complete fundamental research before buying or selling any position.
Follow Scott Barlow on Twitter @SBarlow_ROB.
