Domestic equities took a beating in the trading week ending with Thursday’s close, and the S&P/TSX Composite skidded downr by 3.0 per cent. The benchmark stands 5.7 per cent lower year-to-date.
In terms of technicals, the benchmark itself is again oversold according to Relative Strength Index (RSI). The TSX’s current RSI level of 22.8 is well below the buy signal of 30. The overbought RSI sell signal of 70 is a distant memory.
There is no shortage of oversold benchmark constituents this week – 48 of them – as we’d expect with the index in oversold territory. The 15 most oversold stocks are listed in the table below.
There are a lot of banks among the weakest stocks this week. This can happen when overall selling pressure gets intense because the bank stocks have the most liquidity and are the place sellers can find the most bids. I picked Royal Bank, the fourth most oversold company in the index, as the focus chart this week.
RSI buy signals have been reasonably successful in uncovering profitable buying opportunities for Royal Bank stock during the past 36 months. A series of oversold signal in mid-January 2016 forecasted a rally of more than 50 per cent in the following 12 months.
Another buy signal in February of this year was less useful as the price rallied a scant 4 per cent afterwards before heading lower.
In technical terms, Royal Bank looks attractive for patient investors if the January 2016 pattern is a precedent. At that point, the price repeatedly tested the lows and eventually headed sustainably higher. If, however, the price starts making lower lows, that would be a signal to stay away until the stock stabilizes.
The fundamental outlook for the bank could, of course, tell a different story and investors should always complete fundamental research before adding any position to their portfolio.
There is only one overbought, technically vulnerable index member this week trading above the RSI sell signal of 70, and that is InterRent REIT.