Earnings reporting season is not quite over and corporate earnings can certainly continue to act as a catalyst to the markets behavior and direction, however I want to begin to pay attention to the technical health of the indexes. Let’s take a look at the Dow Jones Industrial Average. It appears that this particular index is becoming overbought. Technicians rely on various technical indicators to get a read on the markets or individual stocks. One of the more popular indicators is the Relative Strength Index or more commonly known as the RSI.
Let’s now analyze the chart of the primary ETF that tracks the Dow, symbol (NYSEArca: DIA). By just looking at the candlestick chart it is easy to see how far the Dow has moved up since early September. Now let’s look at the RSI indicator at the top of the chart. The Dow is trading at a value greater than 70 which historically is an overbought level and technically bearish. Please note that stocks and markets can remain overbought or oversold for extended period of times, but historically speaking when the RSI value is above 70 or below 30, it is technically overbought or oversold. This particular indicator is also very popular with individual equities but please keep in mind this is only one technical indicator and should not be used exclusively as a buy or sell signal. I simply refer to this indicator as my initial read on whether or not a particular index or equity is appearing overbought or oversold. Having said this, the Dow appears to be a bit extended.
Have a healthy and prosperus week.