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The S&P/TSX Composite fell 0.21 per cent for the trading week ending with Thursday's close and now stands 5.3 per cent higher for the year.
According to Relative Strength Index (RSI), the benchmark is right at overbought territory with an RSI reading of 69.8 that is only a whisker away from the sell signal of 70.
Despite the weekly decline in the benchmark there is only one index member, Advantage Oil and Gas Ltd., trading below the RSI buy signal of 30.
The lack of oversold options to choose from led to Royal Bank of Canada, one of the most overbought stocks in the index, as the focus chart this week. Selling Canadian bank stocks has rarely been a good idea, but the chart should indicate whether Canadian investors should hold off before buying more Royal Bank shares.
RSI sell signal have effectively predicted pauses in positive performance and outright declines for Royal Bank stock in the past 24 months.
A sell signal in April of 2015 was followed by a significant 12-per-cent decline to early September 2015. A series of four RSI sell signals in April, May, October and November 2016 were followed by only minimal pullbacks before price rallies resumed. But another sell signal in February of 2017 forecasted a more severe 9-per-cent drop ending in September.
Royal Bank stock looks like a clear case where investors should hold off buying until technical froth burns off and it's no longer overbought. RSI levels change very quickly, so it's reasonable to hope it won't be long.
There are 28 stocks other than Royal Bank on the overbought, technically vulnerable list this week, let by Pretium Resources Inc. Other prominent overbought names include Bank of Montreal, Power Corp., National Bank of Canada, Canadian Imperial Bank of Commerce and Brookfield Property Partners