The S&P/TSX Composite generated a miniscule gain of 0.07 per cent for the trading week ending with Thursday’s close. The benchmark’s Relative Strength Index (RSI) reading of 50.6 puts it firmly in neutral territory almost exactly halfway between the oversold buy signal of 30 and the overbought RSI sell signal of 70.
There are 12 oversold, technically attractive stocks by RSI this week led by Transcontinental Inc. First Capital Realty Inc. is next on the list followed by Canfor Corp., Transcanada Corp., Transalta Renewables Inc., Altagas Ltd. and Alacer Gold Corp.
I chose Quebec-based Cominar REIT as the focus chart this week, a remarkably volatile asset in light of a hefty indicated dividend yield that now exceeds 6 per cent.
Cominar’s unit price has been frequently but not always sensitive to RSI buy signals over the past 24 months. The units were deeply oversold in September 2016 before an 8-per-cent rally but further price declines soon followed. Another buy signal in November 2016 forecast a 9-per-cent rally to late February 2017 but again, further price weakness occurred shortly afterwards.
Cominar was oversold through much of May and June 2017 but the unit price continued steadily lower.
An August 2017 buy signal was by far the most successful for the two-year time period as Cominar rallied more than 22 per cent before January 2018. More recently, RSI buy signals have rarely been reliable entry points with the May 2018 buy signal a possible exception – the trust rose 7 per cent in the following weeks.
The latest buy signals have not been trustworthy, but the potential income remains tempting. This is a case where fundamental research – which should always be part of any transaction – is even more important than usual.
There are only six overbought, technically vulnerable S&P/TSX Composite members according to RSI this week. Enercare Inc. is the most overbought index constituent followed by Nevsun Resources Ltd., Labrador Iron Ore Royalty Co., Cameco Corp., Parkland Fuel Corp. and Alaris Royalty Corp.
Scott Barlow