Market Deterioration Is A Danger Sign

During a market crash Friday morning last week, a friend sent me a message right away.

Almost every stock I have looked at this week is selling well (i.e., 14-day RSI above 70), and has been around for more than a week. ” (RSI means Relative Strength Index, an important measure of stock growth.)

But my friend had hit something. In a few minutes, I was able to run the filters in demand. He was right: The big chunk of the S&P 500 has been rising faster than ever … about 40% of the companies that are on the move by the end of January.

That made me think. What does the change in history in the S&P 500 industry sector with high RSI tell us?

What I have found is alarming.

Very Good

Sometimes, running is a bad thing … a lot shows that the market can be without wisdom pregnant. A look at the RSI history shows that this is a one-time event.

The Relative Strength Index (RSI) of stocks compares the size of recent gains and losses over a given period – 14 days is the most common. Basically, it tests stocks power, either up or down.

Experts use RSI to see if stocks are increasing or becoming over-selling. RSI levels of 70 or higher indicate that stocks are either increasing or declining, thus at risk of a correction. A RSI of 30 or below indicates a difference – traded or not required. It can be a rewarding experience.

The most important word is “to be.” RSI represents ma speed about changes in the average price of goods. When the RSI is high, it means that there is an abnormal amount of purchases over a given period of time compared to the “normal”.

How Big Is The RSI Party?

There is nothing unusual about a high RSI in an individual. For example, when the market is aware that the company is a consolidated target, consumers want to have their assets beforehand, which leads to a higher RSI.

Similarly, we can see significant RSI levels in the stock market segment – strength, for example – as the market thinks the segment is growing.

But since there are 500 companies in the S&P 500, covering all sectors of the economy, it is not uncommon for a large group to enjoy a large RSI at one time.

There were a number of companies in the S&P 500 whose RSI was over 70 last month, from 1990 to the present. I call it the “RSI market” rate.

The average figure seems to be between 5% to 10%. But the RSI market could rise sharply.

For example, after the economic downturns of 1990-1991 and 2001-2002, 30% to 40% of S&P 500 companies had a monthly RSI of more than 70. This is understandable, as we expect inflation to rise sharply as we live. coming out of the economic crisis.

In contrast, in long-term economic growth, market RSI levels fluctuate between 5% to 10%, with fixed spikes of about 20% on quarterly earnings reports.

In contrast, market RSI levels are lower than usual when investors seek yields in other ways. This happened during the initial public release (IPO) explosion before the dot-com explosion, as well as when Americans demolished homes and relocated like crazy during the 2008 financial crisis.

We Live in Wonderful Times

Two strange old things started in late 2016.

First, each “low” market RSI rate is higher than the last. This indicates that the average RSI stock market is continuing for a long time. There is no such thing in the last few decades.

Second, January’s rise in the mid-month RSI market is the highest ever on the rise in the recession.

When we switch to daily In the mid-term RSI market, we see fluctuations in frequency between 5% and 25% since the end of 2016.

But since late summer last year, we have also seen a steady rise in what is happening.

We are also seeing a rise in the RSI stock market – up to about 40% – just before last week.

RSI: Good for Trees, Bad for Forests

High RSI for private property? Good. Too much at one time? Dangerous.

Here is my interpretation. Since the end of 2016, two things have happened.

  • Hope for the Trump administration overshadowed a small warning that surrounds investors, even in the bull market. As the sun’s rays intensified, it snowed – sorry to mix the illustrations – triggering an euphoria “market segment. We appear to have reached a peak at the end of January when the daily RSI market was about to hit 40%… last week.
  • Significant growth in trading volume (ETFs) over the past few years has hampered the RSI market growth by raising prices for “inappropriate” stocks included in ETF shares. The rise of the ETF lifted all the boats … preventing the amount of RSI in the market from returning to the old trends.

Either way, people, this is not normal. And if history has any direction, it will not end well …