Wednesday, 21 July 2010

12:47 BST - SPX - Is a more sustained downtrend being signalled?

Just a quick look at the RSI (14) on the weekly and daily timeframes may be the confirmation that the bears are looking for, that we are more likely to be in for a sustained period of downward rather than upward movement in the markets.

Here's the weekly chart with the RSI in the window above price:

SPX Weekly RSI:

I've highlighted the behaviour of the RSI during recent bull and bear runs in the market. Clearly, it spends most of its time above the 50 level during a bull run and most of its time below the 50 level during a bear run.  

Looking at the far right of the chart, we seem to be seeing the RSI stuck largely below the 50 line since about early May, suggesting the current downtrend in the market could still have more to go.

Here's the daily:

SPX Daily RSI:

Obviously, the RSI is rather more volatile on this timeframe and its moves out of the bullish or bearish zone are deeper than on the weekly, so there's more scope to be whipsawed out of a position using the RSI alone. 

Still, since early May, its spent most of its time below the 50 line. Though its risen above 50 now, with the 50 day moving average having crossed below the 200ma, it suggests that RSI crosses above 50 may be only temporary in nature and not indicative of a change back to an uptrend.

The Bullish Percent line of the SPX is also behaving in a bearish manner - its been unable to recover above the 50 line and get back into the bullish zone, despite recent steep rallies. Its also below its 21 day moving average. This isn't bullish and seems more indicative of the beginnings of a sustained downtrend.

So, just a couple of things to keep an eye on as price action develops.