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January 27, 2006
Assessing market strength or weakness, Fri., Jan. 27, 2006, 8:59 AM
At the tops and bottoms of market cycles, you can always compare the relative price performance of US Smallcap Growth Stocks Index Funds versus the US Value-based Broad Market Index Funds. After the bottom, the smallcap growth stocks ought to out-perform. After the top, they ought to under-perform.
Note the RSI on the charts below.
For the growth stocks, the RSI is higher. The market is bullish, so that is to be expected. But as the momentum slows, watch these interactive charts closely to see the RSI (7) first start to fall and then intersect the RSI (14). That is a bearish indicator.
And as the overall market psychology turns negative, i.e., as fear takes over from greed, then the natural inclination of traders is to sell the smallcap growth stocks first, keeping their value-oriented larger cap stocks. But in a serious change in market psychology, even the value stocks will decline, which you will see when the falling RSI (7) intersects the RSI (14).
Weekly price data series:
US Smallcap Stocks Index Fund -Growth
US Broad Market Index Fund -Value
Daily price data series:
US Smallcap Stocks Index Fund -Growth
US Broad Market Index Fund -Value
Posted by Posted by Bill Cara on January 27, 2006 08:59:01 AM | Category: Trader Tools