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Weekend Stock Market Analysis

(8/3/13)

The Relative Strength Index (RSI) involving the Dow had its lowest monthly close ever back in March of 2009 using a period of 8 Months.   In the past when the 8 Month RSI has closed at or below the 21 level (points B) the Dow has seen significant oversold rallies lasting several months (points C to D) except for the 1978 event (point E).   These oversold rallies ranged from 78% on the low end to as high as 382%.

As the table shows below the current rally from the March 2009 low is the 3rd largest when the 8 Month RSI has dropped to 21 or below.   Also it has been 53 months since the March 2009 low thus the Dow is rather extended in both price and time.    

Low	Low	High	% Gain	Peak	# of Months
Month	Price	Price		Month	to Peak
11-1903	42.15	103.00	144.4	01-1906	26
11-1907	53.00	100.53	89.7	11-1909	24
12-1914	53.17	110.15	107.0	11-1916	23
07-1932	40.60	195.60	381.8	03-1937	56
04-1942	92.70	213.40	130.2	05-1946	49
06-1962	524.60	1001.10	90.8	02-1966	44
10-1974	573.20	1018.00	77.6	03-1976	17
03-1978	736.80	917.20	24.5	09-1978	6
10-2002	7197.49	14198.10	97.3	10-2007	60
03-2009	6470.00	15651.00	141.9	?	53 so far

Meanwhile notice after each significant oversold rally a correction followed lasting several months except for the 1978 event. 

The table below shows the corrections that have followed all of the oversold rallies when the 8 Month RSI Events dropped to 21 or below.  Previous corrections have ranged from 25% on the low end to as high as 54%.   Thus history suggests a decent correction will occur once the current rally from the March 2009 low peaks.

Peak	High	Low	Low	%	# of
Month	Price	Price	Date	Correction	Months
1-1906	103.00	53.00	11-1907	-48.5	22
11-1909	100.53	53.17	12-1914	-47.1	37
11-1916	110.15	65.95	12-1917	-40.1	11
3-1937	195.60	92.70	04-1942	-52.6	61
5-1946	213.40	160.60	06-1949	-24.7	37
2-1966	1001.10	627.50	05-1970	-37.3	51
3-1976	1018.00	736.80	03-1978	-27.6	24
9-1978	917.20	730.00	03-1980	-20.4	18
10-2007	14198.10	6470.00	03-2009	-54.4	17

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