The S&P/TSX Composite rose 0.3 per cent for the trading week ending with Thursday’s close and is now 13 per cent higher for the year.
In terms of technicals, the benchmark’s Relative Strength Index (RSI) of 64 leaves it in neutral territory, although closer to the overbought RSI sell signal of 70 than the oversold buy signal of 30.
There are six index member stocks trading at attractive technical levels with RSI readings below the buy signal of 30.
Enghouse Systems Ltd. is the most oversold company in the benchmark, followed by NFI Group Inc., Winpak Ltd., Premium Brand Holdings Corp., Cascades Inc., and Maple leaf Foods Inc.
I picked Enghouse Systems, a provider of logistics software for telecommunications and utility firms, as the focus chart this week.
Through 2016 and 2017, the stock showed very little volatility, trading within a narrow range. There was one RSI buy signal in the period, in June of 2017, and that marked a stabilizing of the price after a brief sell-off.
An investor who bought Enghouse at that time, if they were able to wait through a number of months of flat price movement, would eventually have been rewarded with a 63-per-cent rally to early September 2018.
Two RSI buy signals for the stock in October 2018 were ineffective. Another in early December did indicate a profitable 16-per-cent rally before March 6 of this year.
RSI buy signals really don’t have enough of a track record in this case to confidently buy Enghouse based on the chart. Fundamental research could potentially provide a strong bull case – investors should always make fundamental research part of their process.
There are 25 S&P/TSX Composite companies trading at overbought, technically vulnerable levels according to RSI this week. Kinder Morgan Canada Ltd. is the most extended stock in the index, followed by Tricon Capital Group Inc., Shopify Inc. (A) , Brookfield Renewable Partners, Transalta Renewables Inc. and Emera Inc.