Tag Archives: Relative Strength Index
The S&P 500 is overbought in the last three days according to a popular indicator. Shorting a technically overbought S&P 500 has been a losing strategy in the last 57 years as shown in this article. Yet, the “market is … Continue reading
I have no idea who came up with the notion of overbought/oversold conditions. Market makers have probably appreciated the gifts from unskilled technical traders who thought these levels could be easily traded. There is worse than that: some even think … Continue reading
I saw a chart yesterday with an overbought RSI used to make a case against continuation of an uptrend. This is absurd. The RSI is a short-term indicator of momentum and used for overbought/oversold conditions in a Gambler’s fallacy sense.
The Dow Jones Industrial Average has stayed overbought for 21 days, which is the longest period this technical condition has persisted in 31 years. As the analysis below shows, the index has moved higher in the following 60 days with … Continue reading
Changes in Relative Strength Index (RSI) have low correlation with changes in price for timeframes longer than two days. This relationship is highly robust for four major ETFs. The conclusion is that only very short-term traders should look at the … Continue reading
Lately some markets have remained highly oversold and others highly overbought for extended periods of time, as also measured by the Relative Strength Index, or RSI. Maybe in this new market environment, technical traders should consider using the Gambler’s Fallacy Indicator™, or the … Continue reading