JUST the RSI for Major Averages

The Market the last few weeks has been death by a thousand cuts. No doubt about it. The pessimism that I am hearing from my colleagues is by far the worst since the Fall of 2008 days ("Fall" is the perfect way to describe that period of time isn't it?). Anyway, there is nothing that I've quantified to back up the amount of negativity, it's just an observation on my part.

I have been posting some pretty positive stuff on Allstarcharts the last few weeks, and the market has continued to new lows. I never give advice or make any recommendations on this site, but I will admit that I have maintained a positive tone recently and that position has been wrong so far. Josh Brown and I were arguing about this a few weeks ago at the "Sell in May Party" on Stone Street where he was the guest of honor. He was bearish then and has been dead right so far. Good for you, I give credit when credit is due.

Today I will continue with my positive point of view by looking at JUST the Relative Strength Index. I know I know...."this is blasphemy". "Only Price Pays JC, you should know this by now". "Looking at JUST RSI doesn't make any sense!". Well I'm going to do it anyway just to prove a point. RSI is still in Bullish Mode across the board. Extreme Oversold levels are below 30 and show evidence of sellers. When RSI remains above those levels during corrections, uptrends have not ended. This is how I analyze securities, others may do things differently. I'm not sure that I've ever seen anyone do an analysis of JUST RSI before, so I thought that it would be interesting to take a unique look at the major averages:

The chart above shows just the Relative Strength Index for the daily price action in major averages that I consider most important: The S&P500 of course, represented by $SPY, Nasdaq100 represented by $QQQ, Russell2000 $IWM, Dow Jones Industrial Average $DIA, Dow Jones Transportation Average $TRAN, and the Emerging Markets represented by $EEM. I took out the price action because it has been just horrifying on a near term basis. But taking a step back a little, nothing has changed in RSI to lead me to believe that any major trend has ended. As always, risk management is goal #1 and it is true that Only Price Pays. But sometimes, we need to trust the analysis that got us to where we are. It is important to remember that this could easily change very soon. We could see severe corrections in these indicators giving us confirmation of trend changes and we will reevaluate our positions accordingly in that case. For now, I thought this was interesting to point out. I hope that you found it as thought-provoking as I did.

You can check out an older post for more on what I look for in RSI - May 3, 2011