The S&P/TSX Composite Index climbed 0.9 per cent for the trading week ending with Thursday's close, and I was a bit surprised to see it's only higher by 1.8 per cent year to date.
In technical terms, the benchmark is in the lower range of neutral territory with a Relative Strength Index (RSI) of 44.8 that's closer to the oversold buy signal of 30 than the overbought sell signal of 70.
There are nine index members trading with RSI readings below the buy signal, indicating a higher probability of a stock price bounce. Aimia Inc. is again the most oversold company in the S&P/TSX Composite, followed by Just Energy Group Inc., Badger Daylighting Ltd., Power Corp of Canada and Aecon Group Inc.
I picked medical marijuana provider Canopy Growth Corp. as the focus stock this week, even though it's RSI of 30.8 leaves it just outside of official oversold territory.
Discussing RSI buy signals for Canopy Growth over the past two years is a bit complicated in that the price was mired in the $2 range for much of the twelve months between the summers of 2015 and 2016. (Note that on the chart I had to adjust the left hand axis to keep things legible).
Beginning in July 2016 the stock ramped to $13, so any investor buying at any point previously was richly rewarded.
Sell signals have been effective during the rally period, predicting significant corrections in November 2016 and February 2017.
Importantly, Canopy Growth has fallen below its 200-day moving average trend line which, if it doesn't regain the line in the near future, could signal a more sustained down trend. Because of this, investors should likely not trust an official RSI buy signal if it occurs.
As always, we're only talking about technicals here and there may well be a strong fundamental case for the stocks. Investors should always complete fundamental research before any market transaction.
The list of overbought, frothy S&P/TSX Composite constituents is smaller this week at eight members. Blackberry Ltd is the most overbought stock in the index with Algonquin Power and Utilities Corp., Air Canada and New Flyer Industries Inc. close behind.