As stocks continue their torrid pace let’s take a look at gold. Gold sold off sharply a couple of weeks ago as investors became more confident about the health of the global economies. In one of my previous blogs I spoke about a technical indicator called the “Relative Strength Index” or the RSI. This is one of the preferred indicators utilized by certain market technicians. Now let’s analyze an example of an oversold asset at least as it pertains to the principles of the RSI and in this case the most popular ETF that tracks the movement of gold, symbol: GLD chart.

At the top of the chart you will see a plot of the RSI and right around the end of January the GLD closed in the $128.00 per share range. In that same time frame the RSI fell to the 30 value level which is an oversold level according to the RSI. Since falling to that level, the GLD has move back up almost 5% to close at $133.14 today. A market technicians dream, a classic example how this powerful tool can be when making trading and investing decisions.

Please remember that this is a text book example that worked to perfection, however equities or indexes can stay oversold  or overbought for extended periods of time. Also the RSI values can breach the 30(oversold) or 70(overbought) value level and can continue to even further decline and stay oversold or increase and stay overbought. Point being, the pundits suggest to use more than just one indicator when including a technical analysis approach. Going back to the chart of the GLD you will notice at the bottom of the chart a plot of the MACD. Certain market technicians will look for confirmation of the RSI with the crossing of the moving averages and in this case the cross occurred a few days ago.

Having said this, I am not recommending to buy gold or the GLD, however I do want to illustrate how technical analysis can assist when considering trading or investing.

Have a great evening.

~George