Skip to main content

The S&P/TSX Composite index fell 0.44 per cent for the trading week ending with Thursday's close.

In technical terms, the benchmark is in the higher range of neutral territory with a Relative Strength Index reading of 59 that's closer to the overbought sell signal of 70 than the RSI buy signal of 30.

There are 17 index components trading at attractive oversold levels according to RSI. These are, almost without exception, precious metals stocks as a strengthening U.S. dollar continues to hammer the sector.

Choosing a focus stock this week was a bit of a trial. I try and avoid the precious metals sector because stock prices move at the whim of the commodity values, and technical analysis isn't as effective. I tried Empire Co., the most oversold stock in the index, but it's been trading below its 200 day moving average for so long that RSI buy signals aren't working at all.

In the end, I picked National Bank, the most overbought company in the S&P/TSX Composite for this week's chart.

National stock is now more overbought than at any time in the past 24 months, and this is cause for short-term concern. That said, recent oversold readings in March, April and June of this year were only followed by small corrections. An RSI oversold, buy signal in May identified a lucrative entry point – National stock has rallied 35 per cent since that point.

The price is also well above the 200-day moving average, indicating a positive mid-term price trend.

The chart suggests that current holders of National bank stock likely don't have much beyond a small pullback to worry about. Investors looking for an entry point to buy National should wait until the RSI level dips below 70.

As always, investors should complete fundamental research before buying or selling any investment

Follow Scott Barlow on Twitter @SBarlow_ROB.

This week's overbought and oversold stocks

OVERSOLD STOCKSRSIPrice200DMAReturn 1W %Return YTD %PE Ratio TTMPE Ratio Fwd
EMP.A-TEMPIRE CO LTD 'A'26.3229115.5220.64205-15.33006-38.5351716.5494595921.58553547
ASR-TALACER GOLD CORP27.284391.862.9578-14.28572-24.6963617.1581660135.65246868
LUC-TLUCARA DIAMOND CORP27.563842.943.369367-6.96202649.6199210.614055899.640924914