The current situation of the market and the Relative Strength Index

People come up to me all day long and talk about the market.  They ask what direction I think the market is headed? Will there be a recession coming our way? Should they invest now or wait?  All of the questions I have been getting recently, seem to have a touch of impending doom surrounding them.  Let’s talk about that!!! 

Since our pull back in December the Dow has rallied back to about 26000. At this point in time the market is slightly overbought according to my indicators.  With that being said, in the next few weeks we may see a market correction.  Everyone loves to hit the panic switch immediately and call for a recession.  I feel that what we could be expecting in the next few weeks is not that.  We can expect a healthy correction hopefully not as long and steep as our scary December event. 

As I always like to remind everyone, keep your eyes on those technical indicators. The RSI indicator (Relative Strength Index) can be invaluable during a turbulent market.  First let us take note that the RSI indicator is an oscillator that goes from 0 to 100.  Next, we should note that an indication under 30 is said to be an oversold event, while an indication above 70 is said to be an overbought event.  As we examine the real-time scenario below, we can see the chart is approaching a slightly overbought signal.  It is in these times that i approach the market with caution and might even start taking a profit.  There is still room on the upside when talking about the RSI indicator in this situation, just note that you are buying as the Dow Jones Industrial Average is approaching overbought levels.  Remember, every stock trades differently and your own due diligence and homework is needed on each trade. Examine the 3 month chart below of the Dow Jones Industrial Average and its relation to the Relative Strength Index. 


Dow Jones Industrial Average with the technical RSI indicator displayed underneath. We can clearly see a recovery from the oversold event in Dec. of 2018 with the RSI approaching the overbought signal as of the market closing price on Feb. 15th, 2019.