The S&P/TSX Composite had a strong upswing of 1.5 per cent for the five trading sessions ending with Thursday's close. The benchmark is still nowhere near overbought levels according to the Relative Strength Index reading of 55 (the overbought signal is 70) but is drifting higher.
The oversold and overbought lists of domestic stocks are remarkably small this week at 11 and 16 respectively. The oversold list is almost entirely made up of energy and gold stocks, just like last week. I still don't trust the commodity price direction enough to recommend trading stocks from either group, also just like last week.
This leaves only Aecon Group Inc. as the focus chart of the week. The stocks fell 14.3 per cent after reporting earnings below expectations. Analysts still, however, appear remarkably optimistic about the company's future. Of the 15 analysts covering Aecon, 14 rate the stock a buy. The consensus 12 month price target implies a 59 per cent return. The analysts could reduce estimates and downgrade ratings, but the figures are still startling.
The chart shows how deeply oversold the stock is at present. The problem is that it was also deeply oversold by RSI in mid-October and cratered after a brief rally.
Previously, the RSI buy target of 30 worked well, signalling future rallies November 2012 and June 2013. In the end, I think Aecon is promising over the mid term and definitely worth further study.
BCE Inc., Telus Corp. and Blackberry Ltd. highlight the overbought, technically extended list. But on the whole it's relatively boring except for the market daredevils who might consider shorting Cineplex.
As always, fundamental research should be a part of any investing decisions. Technical indicators like RSI are effective, but limited investing tools.
Follow Scott Barlow on Twitter @SBarlow_ROB.