The S&P/TSX Composite Index popped 0.94 per cent for the trading week ending with Thursday's close and stands lower by 2.8 per cent so far in 2018. In terms of Relative Strength Index (RSI), the current reading of 54.3 puts the benchmark in technical neutral territory between the RSI buy signal of 30 and the overbought sell signal of 70.
The equity rally left only six index constituents trading at oversold, technically attractive levels according to RSI. PrairieSky Royalty Ltd. is the most oversold stock in the benchmark, followed by Element Fleet Financial Corp., MAXAR Technologies Ltd., Canadian Western Bank, Uni-Select Inc. and Aecon Group Inc.
I chose Aecon Group for this week's focus chart.
RSI buy signals have worked well for Aecon stock in the past two years. A November, 2016, buy signal was followed by a 31-per-cent price rally to March 16, 2017. A May, 2017, buy signal led to a smaller 6.7-per-cent rally in the following two months. The most lucrative RSI buy signal occurred in August of 2017 as the stock appreciated 33 per cent to Nov. 1.
Aecon's price has been frequently sensitive to the 200-day moving average trend line. The 200-day line acted as resistance in February, 2017 , and also in June and July of the same year. The trend line acted as price support in October, 2017.
It's a good sign that Aecon's stock price remains above the 200-day moving average but it's not so great that the most recent RSI buy signal, in February, was not followed by any significant rally.
Fundamental research is important in the case of Aecon, as the price can swing dramatically based on new contract signings, and this information has not been evident in the stock price.
There are 13 overbought, technically vulnerable stocks according to RSI this week, led by Dream Global REIT. Stars Group Inc., Waste Connections Inc., Northview Apartment REIT, Celestica Inc. and Air Canada follow close behind.