CURRENT RSI READING: 34-BULLISH– (QQQ- DAILY CHART)- MARCH 8, 2021
RSI READING: 89–BEARISH (S&P 500- DAILLY CHART)-SEP 2, 2020
RSI: 91- BEARISH (S&P 500-JANUARY 22, 2018)
RULES OF INVESTING
Pay careful attention to how major indexes are behaving around Moving Averages (MA) such as 50, 200 day MA. In 2018, correction bottomed on February 9, 2018 exactly at 200 day MA for S&P 500.
In 2019, S&P 500 found its support right at 200 weekly average.
Be very careful when holding the stocks through the earning calls as a high flier stock such as ANET can fall unhonrably and severely.
Watch out earning reports as growth stocks fall severely after earning calls.
WATCH THE SECTORS
PUT CALL RATIO
Reading over 1.0 signals fear in the market. Corrections and pullbacks have been noted to end as the numbers peak over 1.0. It is considered a contrarian indicator as it signifies excessive fear in the market.
March 20, 2020 (Data from CBOE)
VIX can again be seen as a contrarian indicator. High VIX is seen to coincide with market bottom.
March 19, 2020 HIGH (Data from charts)
S & P 500 was in a major bull market quite recently. Exuberance and complacency was beginning to prevail as trade wars were finally resolved.
We closely watch RSI to ‘LOOK OUT’ for extreme momentum rating. In 2018 January, the markets sold off significantly as the RSI rating went to extreme levels.
Momentum traders should play close attention to the technicals. Watching these averages can prevent significant losses such as seen in 2008, 2011 and more recently in 2018.
You could have avoided significant losses by selling when the major averages broke their major support lines such as 50 day or 200 day averages. This strategy helps to generate cash and use it to buy stocks at a discount.
We also look at the momentum indicator such as Stochastics and Money Flow Index to check for divergences. It is clearly evident that at October peak, when the markets tried to break out of the previous highs, momentum indicators were pointing in the other direction.