The S&P/TSX Composite eased higher by just under one half of one per cent for the trading week ending with Thursday’s close.
The benchmark is in neutral technical territory, according to Relative Strength Index (RSI), but the current reading of 69 is a lot closer to the RSI overbought, sell signal of 70 than the oversold buy signal of 30. The index is 12.6 per cent higher for 2019.
There are seven benchmark constituents trading with attractive RSI levels below the buy signal of 30. Cascades Inc is the most oversold company in the index, followed by Winpak Ltd., Uni-Select Inc., Transcontinental Inc. (A) and Spin Master Corp.
I picked Spin Master, a toy manufacturer that opened for trading in July of 2015, as the focus chart this week.
As it turns out, the technical patterns for Spin Master are straightforward – RSI buy signals were highly effective when the price was above or close to the 200-day moving average trend line, and stopped working when the price fell below.
In February, the 200-day trend seems to have provided price support during an RSI buy signal and a 41-per-cent rally followed to May, 2017. Another buy signal in June 2017 successfully predicted a significant 67 per cent rally in the following nine months.
An April 2018 RSI buy signal was also effective – the stock climbed 23.4 per cent to July.
Spin Master’s price fell below the 200-day moving average in October 2018 and has remained there since. There were a series of buy signals in October, November and December afterwards that failed to result in significant rallies.
There could be a compelling fundamental case for Spin Master to rally from here – fundamental research should be part of all portfolio transactions - but recent history suggests that RSI buy signals can’t be relied upon right now as entry points.
There are 31 overbought, technically vulnerable S&P/TSX Composite member stocks this week. Northview Apartment REIT is the frothiest company in the index, followed by Saputo Inc., Transalta Renewables Inc., Canadian Utilities Ltd. (A) and Cogeco Communications Inc.