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The Dow Jones Industrial Average Just Did Something Rare

The Dow Jones Industrial Average stayed overbought for the whole month of October in the sense of a classical technical analysis measure. This has only occurred three more times in the last 103 years.

Although the Dow Jones Industrial Average stayed overbought in the sense of an RSI(14) > 70 for the whole month of October, it may be seen that near the end of last year it stayed overbought for a longer period. The current overbought period is not a new record but unique in the sense of covering a full month.

Note that the current count of overbought days is 22 but near the end of last year it reached as high as 25.

Since 1914 the index has stayed overbought for a full month three more times in the past: in April 1915, December 1970 and November 1975, as shown in the chart below:

As noted several times in this blog, the RSI is a momentum indicator and using it as an overbought indicator is justified only in the very short-term. Usually it takes a couple of days of sideways or down action to move the RSI from an overbought to a neutral territory. This was demonstrated in this article.

More importantly, extreme overbought conditions are usually a sign of longer-term strength than of a pending trend reversal or top. In the longer-term, shorting an overbought S&P 500 has been a losing strategy as shown in this article.

Finally, it is important to realize that usually overbought conditions occur long uptrends and oversold along downtrends, as shown in this article.

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