The S&P/TSX Composite jumped 1.4 per cent for the trading week ending with Thursday's close and is sneaking up on overbought territory according to Relative Strength Index (RSI) . The benchmark's current RSI of 61.1 is much closer to the sell signal of 70 than the oversold buy signal of 30.
Strong performance in equities markets has left few oversold, technically attractive stocks by RSI.
There are only three benchmark constituents trading in official oversold territory with RSIs below 30 – Mullen Group Ltd., MEG Energy Corp. and Crescent Point Energy Corp.
I picked dairy products provider Saputo Inc. as the focus this week. It's trading above its 200 day moving average and right at the border of oversold levels with an RSI reading of 30.6.
It's notable that Saputo has rarely been oversold in the past two years as this indicates a lack of volatility. An oversold reading in June 2015 wasn't much help as the stock failed to rally, but another buy signal in July 2015 did mark a bottom and the beginning of a substantial, if slow, recovery in price.
The 200-day moving average came in to play in December 2015 and the following January. The stock managed to bounce higher off the trend line on both occasions. Saputo is currently trading close to the 200-day moving average, and it will be important for the price not to fall below the line, as it may signal a prolonged period of weaker returns.
Technically speaking, Saputo looks reasonably but not convincingly attractive. This is a case where fundamental analysis, which is always required before making any market transaction, is even more important. A constructive fundamental outlook, combined with the stock's oversold level and its recent history of holding the 200-day moving average, would form an interesting entry point for investors.
The list of overbought, technically vulnerable benchmark stocks by RSI is sizeable in light of the overall market rally.
There are 18 overbought stocks with a number coming from the precious metals sector. Ivanhoe Mines is the most overbought company, followed by Genworth MI Canada, Pure Industrial REIT, Novagold Resources, Toromont Industries, FirstService Corp., Kinaxis Inc., and Kirkland Lake Gold.
Follow Scott Barlow on Twitter @SBarlow_ROB.
