The RSI (Relative Strength Indicator) is one of my favorite indicators to use when reading charts. There’s really so many ways you can you it such as looking for divergence, oversold/overbought readings, and watching for breaks in RSI trendlines. Every scan and strategy I utilize uses this indicator no matter what timeframe I choose to use.
Below you can see the trendline in the RSI on the major averages and how it’s bumping right up against the upper trendline while the price chart is hovering near the lower trendline. This is really a question of which came first. Is the RSI indicating underlying strength in the charts or is the price chart an indication of major weakness. Unfortunately you really have to wait and see how the RSI reacts when it hits that upper trendline to see if it can breakthrough it which would pull the indexes most likely up to at least their upper trendlines. However if the RSI is rejected I would look for the markets to suffer another serious correction as it seems like we’ve been flirting with all week.
