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The S&P/TSX Composite rose exactly 1.0 per cent for the week ending with Thursday's close. The benchmark's current Relative Strength Index (RSI) level of 58.4 indicates that technically speaking, the index is at the high end of the neutral range between the oversold buy signal of 30 and the overbought sell signal of 70.
The stronger broad market performance this week, despite weakness in the oil sector, leaves only seven benchmark constituents trading with attractive, oversold RSI readings. The list starts with Dorel Industries Inc., with Stars Group Inc., Computer Modelling Group Ltd., Intertape Polymer Group Inc., Bank of Montreal, Celestica Inc. and Boardwalk REIT following behind.
I chose BMO for the focus stock this week because, well, it's a major Canadian bank stock with a yield over four per cent and it's oversold. This doesn't happen often.
There have been only two brief previous periods when BMO has been oversold in the past 24 months. The stock was oversold in early January 2016 and this turned out to be a spectacular entry point for investors. The price climbed 47 per cent in the ensuing 14 months.
BMO was also oversold in May of this year. A rally of 5.3 per cent (not including dividend payments) followed but the price headed straight south shortly thereafter.
BMO has been toying with its 200-day moving average trend line since early May. The price is now significantly below the trend line and this is cause for concern in the short term.
If this were anything other than a big domestic bank stock, I'd be reticent to say the technical outlook is positive. But as long as the fundamental outlook is ok – fundamental research should always accompany technical analysis – investors can be reasonably positive in the short term on the stock.
There are 20 benchmark stocks trading above the RSI sell signal of 70 this week which indicates technical vulnerability. The most overbought stock in the index is Kirkland Lake Gold, followed by Great Canadian Gaming Corp., Toromont Industries Ltd., Intact Financial Corp., and Osisko Gold Royalties Ltd.