I was thinking similar to you that with the quick run up in share price we would see a fall back especially with today being a down market and all the Syria bombing news. And since Veresen is on the overbought list this week (see below) I figured you were right to expect a consolidation. But no we gained a cent today. Tells me there are not a lot of sellers at this price. They see higher share price and higher dividend in our future.
The S&P/TSX Composite rose another 0.86 per cent for the trading week ending with Thursday’s close and now stands 3.6 per cent higher for 2017. In technical terms, the benchmark is still in the neutral zone, according to Relative Strength Index (RSI) , but with a reading of 58 its closer to the overbought, RSI sell signal of 70 than the oversold buy signal of 30.
Recent market strength has left only three technically attractive oversold stocks in the index, led by Klondex Mines Ltd., Magna International Inc. and Valeant Pharmaceuticals International Inc. are the other two companies on the list.
I picked Magna as the focus chart this week. RSI buys signals have worked reasonably well in finding profitable entry points for the stock, but, importantly, buy signals have been far less reliable when the price was below the 200-day moving average trend line.
An RSI buy signal on April 30, 2015 coincided with a test of the 200-day moving average. The stock proceeded to rally 20 per cent to June 1. Another buy signal in late August 2015, when the price was below the trend line, was not as successful – a small rally was followed by another decline. Buy signals were also ineffective in November 2015 and January 2016.
The late June 2016 buy signal ended up very profitable as the stock climbed 41 per cent in the next six months.
Stated bluntly, I don’t trust the current buy signal. Magna’s stock price only recently fell below the 200-day moving average and if it fails to regain the trend line, a sustained downtrend is possible. It’s not far from the trend line, however, and could easily move above it. In this case, the stock would look more attractive from a technical perspective. As always, fundamental research should always be completed before any market transaction.
There are 17 overbought, technically vulnerable stocks according to RSI. Canadian Tire Corporation Ltd. is the most overbought company in the S&P/TSX Composite, followed by Dollarama Inc., New Flyer Industries Inc., and Veresen Inc.. Blackberry Ltd., Rogers Communications Inc., and Telus Corp. are among the most widely-held overbought stocks this week.