And if you play things right, you can end up making a very hefty profit.
And please don't be concerned about the technical terms. By he end of this newsletter, I'm going to make sure you understand everything.
Now, let's see why I expect the JSE-ALSH to go up 11.80% to an all time high.
The RSI indicator tells you which direction the market is more likely to go next
To put it simply.
The RSI, or the Relative Strength Index, is a technical indicator that looks like a squiggly line.
Basically, this line will tell you when a market is over-priced (overbought) or underpriced (undervalued).
The RSI is a closed indicator which ranges from 0 to 100. This means that you'll see the squiggly line jumping up and down between this range. You'll see why this is important in just a minute.
Ok, so there are three levels on the RSI I want you to remember.
- 70
- 50
- 30
When the RSI line touches the 50 mark, it means that the index is fairly priced. This is where the RSI normally oscillates around.
And when the RSI line goes on or below the 30 level, we say that the price of the instrument is undervalued or "underpriced".
This is all going to make sense in a minute.
To help explain this better, let's take a look at the JSE-ALSH with the RSI at the bottom of the chart.
The three crucial levels you need with the RSI
In the above JSE-ALSH chart, you’ll see the three levels indicated in Red(30), Blue (50) and Green (70).
The RSI is telling us that the JSE-ALSH is ready to rally to an all-time high from here!
What you’re seeing is the JSE-ALSH chart and below it is the RSI indicator.
From May 2015 untill August 2015, we’ve seen the JSE-ALSH make lower lows. We’ve seen it drop from 51,000 down to 49,612 down to 46,530.
But now compare it to the RSI.
The first low of the RSI went to 27. The second RSI level touched 30 on the dot. And the final RSI went to 29.
This means that, the RSI has been touching, more or less, the same level on the low, while the ALSI has been making lower lows.
This means there is a bullish divergence between what the JSE is doing and how the RSI is moving.
So what does that mean?
It means that the RSI is showing that there is upside momentum in the making, which could send the JSE-ALSH up from here.
Next let’s look at what the RSI has been doing in terms of highs.
The RSI is ready to break out of the downside and rally once again
At the moment, you need to keep your eye on the 50 level mark on the RSI.
Since, May 2015, we’ve seen the RSI make lower highs.
Granted.
But look where the RSI is at the moment? It’s at 47.12 which is around the 50 level mark.
Now just to remind you… The 50 level mark is where the price is fair valued generally.
But here’s the thing. The RSI has been showing a bullish divergence which means that it’s favouring the momentum to the upside.
And just like skating on thin ice, leads it to a break eventually. With the RSI, the same thing applies to the resistance (purple line) on the RSI. It leads to a break out as well.
The more times the RSI touches the purple line, the weaker it becomes.
And so, it looks like the RSI is ready to break to the upside, above the 50 level.
Once it breaks, the JSE will follow suit and will go to the first target at 52,000.
If the JSE breaks above the 52,000, then it’s next pit-stop could take the JSE-ALSH to all-time highs at 55,321.
Always remember,
“Wisdom yields Wealth”
Timon Rossolimos
Senior Editor: Trading Tips
Head Analyst: Red Hot Storm Trader
Author: 94 Top Trading Lessons of All Time
PS: Finally, part 3 of the "Eurozone Debt Crisis: The next stock market crash is available...
Enjoy watching the final part, by clicking on the play button below
No comments:
Post a Comment