The week’s most oversold and overbought stocks on the TSX

The S&P/TSX Composite index eased lower by 0.4 per cent for the trading week ending with Thursday’s close, and it now sits higher by 13.6 per cent for 2019.

In technical terms, the benchmark is trading at less frothy levels than last week according to Relative Strength Index (RSI). The current reading of 58 is still at the high end of the neutral range between the oversold buy signal of 30 and the overbought RSI sell signal of 70, but less so than seven days ago.

There are only two oversold, technically attractive stocks by RSI this week – North West Co. Inc and Canadian Imperial Bank of Commerce. I picked CIBC for the focus chart this week.

RSI buy signals were effective in uncovering profitable entry points for CIBC in the past but have been much less successful lately.

An RSI buy signal in early November 2016 was followed by a 25-per-cent rally (not including dividends) to Feb. 23, 2017. Patient investors who bought on the May 4, 2017 buy signal were rewarded with a 27-per-cent appreciation to early November 2018.

The next two buy signals – in February 2018 and October 2018 were far less unsuccessful as the price failed to rally. The most recent RSI buy signal, however, on December 24, 2018 was followed by a rally of 18 per cent to the recent high on February 27.

CIBC stock has been sensitive to the 200-day moving average in the past 36 months. The trend line appears to have offered price support in November 2016, and through August 2017. The 200-day moving average line looks to have provided resistance to further rallying in late May 2018 and most recently in early March 2018 when the stock tried and failed to breach the line to the upside.

The most recent buy signal worked well, if temporarily, but I’m having trouble drawing any conclusions about the reliability of the current buy signal in the context of the full chart.

There are fundamental factors to consider with CIBC also – fundamental research should always be completed before any market transactions – as the indicated dividend yield is now over five per cent .

There are 20 overbought, technically vulnerable S&P/TSX Composite companies by RSI this week. Transalta Corp is the most extended company in the index, followed by Thomson Reuters Corp., Transalta Renewables Inc., Riocan REIT, Stella-Jones Inc., Killam Apartment REIT, Telus Corp. and Emera Inc.

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