RSI: Measuring Stock Momentum to Aide Investment Decisions

RSI: Measuring Stock Momentum to Aide Investment Decisions

After a strong first half of the year, the U.S. stock market has gone nowhere fast this summer. But get ready, that may be changing sooner rather than later. 

For several weeks we’ve been saying that this tight SPX 4,300 – 4,600 range can’t last forever and that the direction it breaks from will be the direction we head for the remainder of 2023. Now that range is tightening even further as stocks look to be winding up for a big move. The $100,000 question is, which way will it go? We believe we have a weapon that provides subtle but powerful clues that usually provide our answer. Introducing the Relative Strength Index (RSI). 

What is the RSI?

The relative strength index, or RSI, is a momentum indicator we rely heavily on in our technical analysis, and it has served us well over the years. RSI measures the speed and change of price movements and has become our most prized tool for indicating overbought and oversold conditions and predicting trend reversals. It has taken years for us to fully appreciate the important information the RSI provides, and one of the reasons is that it rarely gives false signals. 

What is the RSI telling us about the current market? 

Based on the RSI reading of the past week, it appears stocks are weakening and will soon break lower from our summer range. That is enough to have us not only raising cash, but looking at other asset classes that typically don’t run with the stock market, specifically bonds, utilities, and precious metals. These three groups have been laggards so far this year, but as we write this in the third week of September, these assets are setting up to make runs higher into the close of 2023, possibly big ones. If the relative strength continues lining up, we are looking to take starter positions in the next couple of weeks in all three groups, and adding to those positions if and as they climb. And of course, if they don’t, we won’t. 

So stand by. After the summer stock market doldrums, things may get interesting.

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If you would like more information about how the investment managers at Good Life Asset Strategies utilize RSI in our trading or would like to discuss your overall portfolio, feel free to contact us for a free, no-obligation portfolio review

The views expressed represent the opinion of Good Life Asset Strategies, LLC. The views are subject to change and are not intended as a forecast or guarantee of future results. This material is for informational purposes only. It does not constitute investment advice and is not intended as an endorsement of any specific investment. Stated information is derived from proprietary and nonproprietary sources that have not been independently verified for accuracy or completeness.