A welcome 3.2 per cent bounce for the S&P/TSX Composite index in the last five sessions has the benchmark in neutral territory according to Relative Strength Index.
The list of oversold, technically attractive stocks by RSI has been slashed to seven – a far cry from the 50 oversold stocks only two weeks ago. Four of the oversolds are energy-related; Savanna Energy Services Corp., Penn West Petroleum Ltd., Lightstream Resources Ltd., and Trican Well Services Ltd. Two are financial, Dundee Corp. and AGF Management Ltd., and there's one REIT in Northern Property Real Estate.
Northern Properties is the focus chart this week, but that doesn't make it a recommendation. Trading this volatile REIT is not a good idea for any investors without a strong stomach and outsized tolerance for risk. But, the most recent analyst report on the REIT from TD rated Northern Properties a 'buy.' The indicated dividend yield stands at 6.4 per cent (for now) and the potential 12-month return based on the consensus price target (again, for now) is 27.3 per cent.
RSI has worked pretty well in identifying bottoms in the REIT price but the problem is that the subsequent rallies have occasionally been short lived. In June of 2013, for instance, a sustained period of being undersold was followed by a five per cent rally followed by a 10 per cent decline. Oversold readings in December 2013 and March 2014 were far more successful. At no time in the past 24 months has Northern Properties been as oversold as it has been recently.
There are only three overbought, technically vulnerable stocks in the benchmark this week – Dollarama Inc., Alimentation Couche-Tard Inc. and North West Co. Inc. The short list is surprising in light of the benchmark's strong performance this week but it is an indication of a healthy market – very few stocks are ahead of themselves.
As always, technical analysis has historically been a helpful technique to uncover buying and selling prices for investments, but investors should incorporate fundamental research into every market-related decision.
Follow Scott Barlow on Twitter @SBarlow_ROB.
