Tuesday, January 31, 2012

31 Jan 2012

RSI has nearly peaked out in the longest term I track at 96%.  The index itself is within a few percent of all time highs.
Pretty persistent weakness in the shorter term indicators, but it has not yet amounted to anything.  The medium term (bottom) is starting to roll over a bit, but if you look at previous times it has been this high, it usually takes some time.


  1. Scott,

    Would you provide more information on your use of the RSI? I've learned that RSI is a momentum oscillator that measures the speed and change of price movements. I've also learned that a RSI over 70 indicates an overbought condition. Does it also indicate Buyer Exhaustion? Are we watching for a reversal in the RSI as the ultimate sell signal. Thanks in advance.

  2. The reversal will have to come in the underlying index it is measuring. RSI is, as you said, a speed measure of the underlying index. The use of it here is to give us a consistent baseline measuring how far and how fast the McClellan Summation index has moved to compare to previous "cycles." As you can see this level of the RSI has only occurred a few times the past few years and usually turned shortly there after.

    The problem with using only 70 or 30 as followers have probably learned like I have is that 70 is only the beginning threshold for being overbought. However, as Keynes pointed out, irrationality (that is what extreme RSI values show) can last longer than investors can remain solvent.

    It is merely a data point showing a move has gotten extreme and that it is only PROBABLE that a trend change is imminent as buyers / sellers stop pushing a certain trend and the path of least resistance turns the other direction.

  3. Scott,

    Thanks for the detailed explanation. With your guidance, someday all these technical indicators will make better sense. Thanks again for maintaining your blog.