The week's most oversold and overbought stocks on the TSX

The S&P/TSX Composite finished the trading week ended Thursday with a gain of 0.6 per cent. According to Relative Strength Index (RSI), my favoured short-term technical indicator, the benchmark is in neutral territory. The RSI reading of 57 is close to middle ground between the oversold buy signal of 30 and the sell signal of 70.

There are fewer oversold, technically attractive index members this week than I expected at 13. Fairfax Financial Holdings is the most oversold benchmark constituent and the real estate sector, still struggling with rising bond yields, is well represented. Boardwalk REIT, Smart REIT and Allied Properties REIT are all on the list.

I picked Fairfax Financial as the focus chart this week because it's the most notable company on the list but I had reservations. The stock price is well below the 200-day moving average and, as we've seen previously, RSI buy signals have worked less well when this is the case.

The good news is that Fairfax's stock price has responded to RSI buy signals in the rare periods when it's oversold. In September of 2015, for instance, RSI indicated a technical buying opportunity when the price was below the 200 day trendline. The stock rallied 21 per cent in the ensuing two months. RSI also pinpointed lucrative entry points in May, 2015, and May, 2016.

In my opinion, Fairfax shares are falling too quickly now to be attractive – it looks like the proverbial 'falling knife'. But, once the price stabilizes, investors can be reasonably confident in an at least partial recovery. As always, this is all contingent on fundamental research which investors should always complete before making any market transaction.

The list of overbought, technically vulnerable S&P/TSX Composite stocks is sizeable at 23 members. Manulife Financial Corp., and Sun Life Financial Inc. top the list – insurers benefit from higher bond yields. Miners are also well represented with the list including Teck Resources Ltd., Russell Metals Inc., Labrador Iron Ore Royalty and Hudbay Minerals Inc.

Follow Scott Barlow on Twitter @SBarlow_ROB.