The S&P/TSX Composite index jumped 1.2 per cent for the trading week ending with Thursday’s close and stands 3.9 per cent lower for 2018 so far.
The benchmark’s Relative Strength Index (RSI) level of 54 puts it in roughly neutral technical territory between the overbought RSI sell signal of 70 and the oversold buy signal of 30.
There are only three technically attractive, oversold index members this week, led by Alimentation Couche-Tard Inc. Toronto-Dominion Bank, which I focused on last week in this column, remains oversold and Spin Master Corp completes the list.
I picked BCE Inc. as the focus chart this week even though it has an RSI reading that’s hovering right near the buy signal at 30.1 and is not officially oversold.
BCE, one of the stalwarts of the Canadian equity benchmark, has been largely ignoring technical price signals. Previously – June of 2016 and July of 2017 are good examples – BCE could be relied upon to rally from oversold conditions. At worst, like in November 2016, an oversold RSI reading marked a temporary bottom and the beginning of a basing pattern.
Two years is admittedly not a long-term history, but it’s notable that the 11.4-per-cent sell-off in BCE that began in December of 2017 is the deepest for the period by a significant margin. The series of RSI buy signals in January had almost no effect on the stock price as it continued sharply lower. It is reasonable, with this in mind, for investors to distrust the current buy signal.
I emphasize that RSI is a very short-term technical indicator, and its current irrelevance does not mean BCE stock is headed sustainably lower or that current holders should think about selling it. The recent weakness has pushed the dividend yield to a highly attractive 5.6 per cent. Given the sizeable market dominance of the company, there could very well be a compelling fundamental argument to buy it now, and investors should always complete fundamental research before making any market transactions.
Energy and precious metals stocks dominate the list of overbought, technically vulnerable index constituents this week.
Baxtex Energy Corp. is the most extended stock in the benchmark, followed by Fortuna Silver Mines Inc., Parex Resources Inc., MEG Energy Corp., Tahoe Resources Inc. and Whitecap Resources Inc.
Scott Barlow