The S&P/TSX composite had a solid week, rising 0.9 per cent to Thursday's close. According to Relative Strength Index (RSI), the benchmark is in technically neutral territory with a reading of 53 that is approximately mid-way between the oversold sell signal of 30 and the RSI sell signal of 70.
There are seven oversold, technically attractive index members this week led by Cineplex Inc. Waste Connections Inc., New Flyer Industries Inc., Transalta Renewables Inc., Tahoe Resources Inc., Uni-Select Inc. and Altus Group Ltd. complete the list.
I picked New Flyer Industries as the focus chart. The stock is is deeply oversold after dropping almost seven per cent in the past week.
RSI buy signals have been rare but effective in uncovering profitable buying opportunities for New Flyer. The stock was almost, but not quite, officially oversold in February, 2016, and a strong rally followed. Another buy signal in early November, 2016, predicted a more than 50-per-cent appreciation to June 6, 2017.
New Flyer has tested the 200-day moving average trend line in the past 24 months – notably in the October, 2016, to March, 2017, period – but has so far managed to stay above it. This implies that the positive longer term trend remains intact. The price is currently well above the trend line.
As long as New Flyer's fundamental outlook remains strong – fundamental research should always be completed before buying any investment – the current buy signal looks like a promising entry point.
There are only five frothy, overbought stocks this week by RSI. Linamar Corp. is the most technically vulnerable S&P/TSX composite constituent, followed by Western Forest Products Inc., Cogeco Communications Inc., National Bank and Rogers Communications Inc.