Don't Expose Yourself to Costly Surprises ...

By: Marty Chenard | Tue, Jun 8, 2010
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Use different RSI settings for different purposes ...

For market trending, setting your RSI indicator to 30 (days) works well. An RSI of 30 also works well when drawing support and resistance lines.

What about other settings? An indicator setting of 9 on the RSI often proves to be a very useful when you are "looking for positive divergences" that are building up or appearing.

This morning's chart show's our version of the 9 day RSI. Our C-RSI is zero based, in other words, we subtract 50 from the daily readings. This has the advantage of showing when the 9 RSI is positive or negative rather than whether it is above or below 50 which requires your attention and interpretation.

Anyway, the point today is to look at the 9 RSI in order to observe any positive divergences that may be building. You can see at label B, that there was a positive divergence this past February and that lead to an upside reversal when the RSI went positive (over the zero line).

So, where are we now?

If you look at label D, you can see that we do have a positive divergence building.

The 9 RSI has not gone positive, so this is still a down condition, but it is showing a pattern where the risks levels are starting to increase substantially for those who may be shorting the market.

Over the long term, smart investors have learned to reduce market exposure as risk levels increase, and to increase the amounts invested as risk levels decrease.

Historically, those that don't learn to reduce exposure as risk levels increase get a costly surprise sooner or later.

NYSE RSI

 


 

Marty Chenard

Author: Marty Chenard

Marty Chenard
StockTiming.com
Asheville, NC 28805
Tel: 828-296-1200

Marty Chenard is an Advanced Stock Market Technical Analyst that has developed his own proprietary analytical tools and stock market models. As a result, he was out of the market two weeks before the 1987 Crash in the most recent Bear Market he faxed his Members in March 2000 telling them all to SELL. He is an advanced technical analyst and not an investment advisor, nor a securities broker.

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