The S&P/TSX Composite leapt 1.4 per cent for the trading week ending with Thursday’s close and is now down 2.9 per cent for the year.
The benchmark’s Relative Strength Index (RSI) score of 49 puts it in technically neutral territory, almost exactly half way between the oversold buy signal of 30 and the RSI sell signal of 70.
There are nine oversold, technically attractive index member stocks this week. Bombardier Inc. tops the list, followed by Vermillion Energy Inc., Sleep Country Canada Holdings Inc., Guyana Goldfields Inc., Nuvista Energy Ltd., Tamarack Valley Energy Ltd., Altagas Ltd., Encana Corp., and ATS Automation Tooling Systems Inc..
I considered ATS Automation as the focus chart this week because there’s a Credit Suisse economist expecting a rebound for the global auto sector, but I chose Bombardier in the end because it’s been more in the news.
Bombardier’s stock price has been sensitive to both RSI buy signals and the 200-day moving average trend line in the past 24 months. A March 2017 buy signal (the 200 day trend line appears to have provided price support at this time) forecast a 34-per-cent rally to August 2017. Buyers of the stock on the September 2017 RSI buy signal would have generated a massive 153-per-cent gain by July of 2018.
The problem is that selling pressure has been so intense since the summer that RSI buy signals have become less reliable. The stock price did manage a brief rally after an early September buy signal, but then headed directly south again soon after.
Bombardier’s stock knifed through the 200-day moving average in October without a pause. This suggests significant technical damage that makes the current buy signal less reliable. The picture may change if the price stabilizes, but blindly following the buy signal at this point is likely unwise.
Fundamental research is always a key component of any market transaction and investors should always factor the fundamental outlook into any market transaction.
There are nine overbought, technically vulnerable S&P/TSX Composite constituents by RSI this week, led by Home Capital Group Inc., Great Canadian Gaming Corp., Loblaw Companies Ltd., Uni-Select Inc., Canadian Tire Corp., Gildan Activewear Inc., Pason Systems Inc., Aecon Group Inc. and Fortis Inc. complete the list.