The S&P/TSX Composite eased higher by 0.2 per cent for the abbreviated trading week ending with Thursday’s close.
The benchmark is in technically neutral territory as measured by Relative Strength Index (RSI) with a 36 reading that is between the oversold buy signal of 30 and the overbought RSI sell signal of 70.
There are 29 index member stocks trading at oversold levels below the RSI 30 buy signal. TransAlta Corp. is the most oversold company in the benchmark, followed by Peyto Exploration and Development Corp., Knight Therapeutics Inc., Keyera Corp., CIBC and Computer Modelling Group Ltd. ONEX Corp., National Bank, Hudson’s Bay and Power Corp are other prominent names on this week’s list.
I chose CIBC for the focus chart this week because it’s widely held, and I also wanted to attempt to gain more insight into recent bank sector underperformance.
RSI buy signals have worked well for CIBC stock over the past three years but like a lot of companies we’ve looked at lately, the signals have been less effective recently.
CIBC was deeply oversold in January 2016 before rallying 25 per cent in the next six months. In November 2016, an RSI oversold signal was followed by a 23-per-cent appreciation to March of 2017. A May 2017 buy signal would have worked out for patient investors who were eventually rewarded with a 16-per-cent rally by January 2018.
A February 2018 buy signal was only marginally effective but another series of buy signals in April 2018 led to a 13-per-cent rise in the stock price in early September. October 2018 buy signals were ineffective.
From a technical standpoint, the most concerning event for the stock price occurred in late November when the 200-day moving average trend line acted as resistance for an extended rally, and further declines followed. Investors might have to wait until the price rises sustainably above the trend line to trust the next rally.
We are only dealing with technicals here, and the past history of domestic bank stocks suggests that there could be a value-based argument for future gains – fundamental analysis should accompany any investment decision.
There are six overbought, technically vulnerable S&P/TSX Composite stocks this week with precious metals stocks dominating.