The unfortunate thing about this week's list of overbought and oversold TSX stocks is, there are 37 oversold Canadian stocks in the benchmark and there's only one that I would even remotely consider trading. For the others, the stock prices are at the mercy of either gold or energy prices over which they have no control.
The S&P/TSX Composite zig zagged its way to a small loss of 0.13 per cent in the most recent Thursday to Thursday period. The current Relative Strength Index reading of 45 remains closer to the buy signal of 30 than the sell signal of 70 but beyond that doesn't tell us much.
Again this week, I'm going to ignore the energy stocks on the oversold list. It's not because I'm bearish, I just don't know where the price of crude oil is going. The sector has undergone a serious shock in terms of the commodity price, but the effects – notably in terms of future cash flow generation – aren't clear yet.
Precious metals stocks are a similar story. Future profit growth prospects are impossible to project without a view on the bullion price, which is driven primarily by the U.S. dollar and sentiment. Gold prices move in the opposite direction of the greenback, which is still rising, and sentiment is currently terrible.
Cott Corp is the focus chart for the week because one, I don't have much choice and two, it's a good example of when to ignore an oversold stock. The chart shows that, over the past two years, the stock has been frequently oversold but the subsequent rallies were not significant, and have quickly reversed course.
I really wish there were more interesting trading and investing opportunities in the domestic market, but I don't see any where the balance of probabilities are in investors' favour. Again, I'm not bearish, merely skeptical.
As always, fundamental research should accompany any investment decision. This is a particularly important notion this week, when technical indicators aren't uncovering much.
Follow Scott Barlow on Twitter @SBarlow_ROB.
