The S&P/TSX Composite fell 0.23 per cent for the trading week ending with Thursday’s close and now stands 3.0 per cent higher for 2018.
The index remains in technically neutral territory, according to Relative Strength Index (RSI), with a reading of 51. That’s more or less halfway between the buy signal of 30 and the RSI sell signal of 70.
There are 15 oversold, technically attractive benchmark members trading with RSIs below the buy signal of 30. The list is dominated by precious metals stocks. New Gold Inc. is the most oversold company in the index, followed by Barrick Gold Corp., Torex Gold Resources Inc. and Premium Brand Holdings Corp.
Gold stock moves are far more sensitive to the volatile commodity price than technical factors like RSI, so I chose Cott Corp. for the focus chart this week.
The effectiveness of RSI buy signals has been uneven for Cott Corp. over the past 24 months, but the stock has been frequently sensitive to the 200-day moving average.
As for buy signals, the October 2016 version wasn’t much good at all as the stock continued to head lower. An early December 2016 buy signal was highly useful, however, as the price appreciated 46 per cent to August 2017.
RSI buy signal in February and March of 2018 were merely followed by tiny rallies before selling resumed.
The 200-day moving average appears to have affected stock movements often in the past 24 months. The trend line provided temporary price support in the October and November 2016 time frame, bu,t after the price fell through the 200 day, the line formed resistance to a stronger rally in December.
In May 2017, the 200-day moving average again provided support, allowing the rally to continue for almost another 12 months. Cott’s stock priced danced right along the trend line in March and April this year.
The chart implies that it’s more important that the stock is right at the 200-day moving average than the fact that it’s oversold by RSI. A move below the trend line suggests further downside, but if it bounces off the line and climbs, the short-term outlook gets far more positive.
Fundamental analysis is always a key factor in a company’s stock performance and it should always be completed before any market transaction.
Enercare Inc is. the most overbought, technically vulnerable S&P/TSX company according to RSI this week. CIBC, Gibson Energy Inc. , Transalta Corp. and Aecon Group Inc. are also among the index’s most oversold stocks.
Scott Barlow