Here, the RSI significantly broke below the critical 30 level about a month before the intense late 2002 selloff while the market was still in a fairly mild decline. The next episode:
This was in front (just barely) of the strong August 2007 selloff. This was right at the start of our present bear market before it got very bad. The lead groups were rolling over and were just starting to trade mostly below the 140. The third episode:
This was very similar to the mid 2002 episode with the sub 30 dip occurring a month in front of the main drop. Oh, and there is a fourth episode of this warning signal:
Yes, it's happening now. This rare signal is speaking again. What is it saying? Get out of Dodge.
The RSI of the % above the 50 dma seems to be a better indicator than the indicator itself. Why is that?
ReplyDeleteYou'd think the oversold RSI condition would be more evident at the wild bottoms of those sell-offs instead of at the tamer part. Really screwy!
ReplyDeletepam, I don't really know. Maybe it has something to do with the fact that this is charting all stocks in the NYSE, not just the big, stable ones in the major indexes. Small, more volatile stocks seem to start trend changes a little earlier than the big ones. Maybe when something starts to be discounted, it causes a kind of pre-shock rumble which avalanches a lot of the smaller stocks down through their 50 dma all at once, making the RSI a kind of 2nd derivative early warning. Just daydreaming, pam. I don't know.
ReplyDeleteQuite a find. The lag can be 4 months. 10-20% ups and downs...
ReplyDeleteSD