Chart 4 shows the S&P 500 in a bull run with 14-week RSI. Notice that the 40–50 zone acts as support in an uptrend. RSI dipped below 50 numerous times, but held above 40 from late 2004 until late 2007. These dips into the 40–50 zone served as an alert to start looking for the end of the correction.
Instead of the 40–50 zone acting as support, the 50–60 zone now acts as resistance. Chart 5 shows the S&P 500 in a bear run with 14-week RSI. The downtrend in SPX got underway with the sharp decline in the second half of 2000. RSI became oversold and bounced back above 50 in May 2001 (blue arrow). This marked resistance and indicated that the counter-trend advance was coming to an end. The same thing happened in December 2001 and March 2002 (red arrows). 
No comments:
Post a Comment