The S&P/TSX Composite was almost exactly flat for the trading week ending with Thursday's close – technically, it climbed 0.005 per cent.
Relative Strength Index (RSI) puts the benchmark in technically neutral territory with a reading of 54.7 that is only marginal closer to the sell signal of 70 than the oversold buy signal of 30.
There are 14 oversold, technically attractive index constituents according to RSI this week. The deeply oversold Corus Entertainment Inc. (RSI readings as low as Corus' current 9.7 are rare) is the most oversold stock in the index, followed by Cineplex Inc., Shaw Communications Inc., Cogeco Communications Inc. and Birchcliff Energy Ltd.
I picked Laurentian Bank, with its 4.7 per cent indicated yield, as the focus stock this week.
RSI buy signals, readings below 30, have been effective indicators of profitable entry points for Laurentian stock for most of the past 24 months. Deeply oversold conditions in January 2016 led to a 22.3-per-cent rally to June of the same year.
A series of buy signals in May 2017 eventually led to a 17.4-per-cent appreciation (not including dividends) by September 27.
More recently, buy signals have been less useful. In November, an RSI buy signal was followed by a brief, smaller rally before the price headed lower again. In December, the buy signal marked a bottoming of the stock price, but a period of flat performance was followed by the most recent downdraft.
The stock appears sensitive to its 200-day moving average. The trend line provided price support in May 2016. The price hugged the 200-day trend from June to October 2016, and again for a shorter time from December 2017 to earlier this month. The 200 day also formed resistance to a rally in July 2017.
Investors can expect Laurentian Bank's stock price to stabilize in the coming days based on the past two years of market history. There will also likely be resistance to an extended rally at the 200-day moving average.
As always, fundamentals can trump technical factors and investors should always complete fundamental research before making any market transactions.
As for overbought, technically vulnerable index members this week, the list of 11 companies is led by Pure Industrial REIT. Royal Bank of Canada, Bank of Montreal and Sun Life Financial Inc. are other prominent overbought names.