The S&P/TSX Composite index eased higher by 0.26 per cent for the trading week ending with Thursday's close. Relative Strength Index (RSI) puts the benchmark in neutral technical territory with a reading of 47.5 that is roughly in the middle between the buy signal of 30 and the RSI sell signal of 70.
There aren't a lot of oversold or overbought index constituents this week.
There are eight oversold, technically attractive stocks led by Aimia Inc. Energy producers are well represented on the list with MEG Energy Corp., Cenovus Energy Inc., Encana Corp. and Surge Energy Inc..
I picked the oversold CANREIT – Canadian Real Estate Investment Trust – as the focus this week.
The units carry an attractive 4.9-per-cent distribution yield, and my hope was that the investment had responded to technical buy signals previously, making it all the more attractive as a buying opportunity.
It didn't turn out that way as RSI buy signals have been unreliable in the past 24 months. In late 2015 and early 2016, buy signals were followed by decent rallies in the 10-per-cent range, but the price headed immediately lower directly afterward. The same pattern was evident in September and October 2016 as subsequent rallies were unsustainable and the unit price headed to new lows.
If CANREIT does rally, investors should not that RSI sell signals have been effective for the investment, signalling approaching corrections in July 2016 and February 2017, to note only two instances.
There might be fundamental reasons beyond the yield that make this REIT a promising investment opportunity – fundamental research should accompany all transactions – but recent patterns suggest the RSI oversold signal is not a compelling reason for buying.
There are 11 overbought stocks by RSI that are vulnerable to short term price corrections. BRP Inc. is the most technically extended stock in the benchmark followed by Boyd Group Income Fund, Sierra Wireless Inc., Osisko Gold Royalties Ltd. and Emera Inc.