RSI: Relative Strength Index [Stock Markets]

Posted on August 6, 2024 by Dr. David Edward Marcinko MBA MEd CMP™

By Staff Reporters

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The relative strength index (RSI) is a technical indicator used in the analysis of financial markets. It is intended to chart the current and historical strength or weakness of a stock or market based on the closing prices of a recent trading period. The indicator should not be confused with relative strength.

The RSI is classified as a momentum oscillator, measuring the velocity and magnitude of price movements. Momentum is the rate of the rise or fall in price. The relative strength RS is given as the ratio of higher closes to lower closes. Concretely, one computes two averages of absolute values of closing price changes, i.e. two sums involving the sizes of candles in a candle chart. The RSI computes momentum as the ratio of higher closes to overall closes: stocks which have had more or stronger positive changes have a higher RSI than stocks which have had more or stronger negative changes.

The RSI is most typically used on a 14-day time frame, measured on a scale from 0 to 100, with high and low levels marked at 70 and 30, respectively. Short or longer time frames are used for alternately shorter or longer outlooks. High and low levels—80 and 20, or 90 and 10—occur less frequently but indicate stronger momentum.

The relative strength index was developed by J. Welles Wilder and published in a 1978 book, New Concepts in Technical Trading Systems, and in Commodities magazine (now Modern Trader magazine) in the June 1978 issue. It has become one of the most popular oscillator indices.

The RSI provides signals that tell investors to buy when the security or currency is oversold and to sell when it is overbought.

RSI with recommended parameters and its day-to-day optimization was tested and compared with other strategies in Marek and Šedivá (2017). The testing was randomized in time and companies and showed that RSI can still produce good results; however, in longer time it is usually overcome by the simple buy-and-hold strategy.

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DAILY UPDATE: Google Monopoly, Mag 7 Still Down as VIX “Fear Index” Rises and Stock Markets Plunge!

Posted on August 6, 2024 by Dr. David Edward Marcinko MBA MEd CMP™

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A federal judge ruled that Google engaged in illegal practices to preserve its search engine monopoly, delivering a major antitrust victory to the Justice Department in its effort to rein in Silicon Valley technology giants. Google, which performs about 90 percent of the world’s internet searches, exploited its market dominance to stomp out competitors, U.S. District Judge Amit P. Mehta said in the long-awaited ruling.

CITE: https://tinyurl.com/2h47urt5

Stat: $900 billion. That’s the potential market value loss of the Magnificent Seven tech companies as investors shed tech stocks. The selloff comes as investors are looking for safer bets in the event of a recession. (Reuters)

CITE: https://tinyurl.com/tj8smmes

Here’s where the major benchmarks ended:

  • The S&P 500 index tanked 160.23 points (–3.00%) to 5,186.33; the Dow Jones Industrial Average® ($DJI) plunged 1,033.99 points (–2.60%) to 38,703.27; the NASDAQ Composite plummeted 576.08 points (–3.43%) to 16,200.08.
  • The 10-year Treasury note yield (TNX) dropped to 3.78%, the lowest close since June 2023.
  • The CBOE Volatility Index® (VIX) ended at 37.04, a four-year high but well-off intraday peaks above 60.

Today, the VIX reached levels not seen since early 2020 during the pandemic panic. This type of volatility can suggest oversold conditions. A higher VIX, sometimes called the “fear index,” reflects uncertainty and can suggest quicker, more intense market swings.

What’s up

What’s down

  • Apple stumbled 4.82% after Warren Buffett’s Berkshire Hathway revealed it has cut its position in the tech company by nearly 50%.
  • Nvidia fell 6.36% after a report this weekend revealed that its brand new chips will be delayed by three months or more due to design flaws.
  • Tesla sank 4.23% due to concerns about the auto maker’s global growth, despite Elon Musk’s recent positivity.
  • Intel continued to crumble, sliding 6.38% as the after-effects of its terrible second-quarter earnings report continue to be felt.
  • Bitcoin-related stocks plummeted today as cryptocurrencies were unable to avoid a major selloff. Coinbase plunged 7.32%, while MicroStrategy dropped 9.60%, and even Robinhood tumbled 8.17%.

Visualize: How private equity tangled banks in a web of debt, from the Financial Times.

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