Thursday, July 16, 2009

Evening Summary: RSI(2) sell, Nasdaq100 Streaking...

RSI(2) again...and again...
On July 14th i pointed an RSI(2) sell which argued that the S&P should trade lower within 3 days. That signal is off the board tonight and has failed to produce positive results. This signal used the RSI 90 as a trigger value.
Last night i pointed out once more another RSI(2) sell signal, this time based on consecutive readings above 90. That signal has a 3 day timeframe, so it has until monday to play out. For it to succeed the S&P has to trade below 932.68 tomorrow.

Tonight we have yet another RSI sell, this time using RSI 98 as trigger value. In the past decade, when the RSI(2) has closed above 98, it has generally been a good signal to sell into. Out of 23 occurrences, the market was trading lower 21 times within the next 3 days.

Side Note: I think it is important to keep in mind that in periods of high speculation, Overbought and Oversold conditions can persist for long periods of time. Further more, when the market makes higher highs in overbought, it is usually BULLISH looking further out. Now i would not use a fast reading such as the RSI(2) to guage this type of persistance, but i would use an RSI(5) or higher. Here we are beginning to see the market make higher highs in OB.

Nasdaq 100 Streaks:
The nasdaq 100 closed up for 7 consecutive days while also closing above it's BB(20,2) upper band. Since 1990 there were 18 such occurrences. In 16 cases, the Nasdaq 100 was trading lower within 3 days (or 89% of the time). In fact, in all but one of the case, the Nasdaq 100 closed lower within 2 days. This study implies a likely lower close by monday on the nasdaq.


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