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S&P 500 e o ATR...

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RSI Hits Top Channel

By Joseph W. Sunderman (jsunderman@sir-inc.com)
1/10/2003 3:01 PM ET

Even though this was the first full week of trading in two weeks, price action can be pretty much summed up by Monday's action. The S&P 500 Index (SPX) started its first full week of trading on a very strong note, gaining more than 20 points. Traders could have gone home after that session and not come back for the rest of the week. From Tuesday through Friday, the SPX fluctuated between the highs and lows made on Monday, January 6. In fact, the broad market index has come within a couple of points of having all of the price action from Tuesday through Friday falling between Monday's high and low.

For those technicians in the audience, this week almost had four "inside days" based off of Monday's action. Such price action is a sign of indecisiveness among the investing community. During such periods, traders' conviction levels are not strong enough to push the market higher or lower.

I think what held back the market for the latter half of the week was today's nonfarm payroll and unemployment report. If you recall, November nonfarm payrolls and unemployment report (December 6) took an unexpected turn for the worse. The market sold off strongly only to be "saved" by the resignations of President Bush's economic team. (Of course, on the Monday following December's report the SPX fell 20 points.) Thus, investors were unwilling to take the market any higher or lower until today's announcement from the Labor Department.

Today's nonfarm payroll and unemployment report was another negative surprise, but the market shrugged off this news despite the run-up the market had going into the widely-followed number. Now the focus of investors will be on fourth-quarter earnings, which will be flooding the market for the next couple of weeks.

Looking at the nine-week Relative Strength Index (RSI), the SPX is in an overbought condition. This overbought condition is based on the RSI creeping to the top of its downtrending channel that marked the highs on several occasions since 1995. This is the third consecutive week in which the RSI has gone up in value. It currently stands at 56.

At November's peak, the RSI reached the 59 level in the week ending November 29. Over the past couple of years, the highest the RSI has reached were the following: 67 (March 2000), 61 (July 2000), 61 (September 2000), 59 (January 2002), and 60 (March 2002). At this point, it seems the market still has limited upside given the level of the RSI, but the earnings report season could be a significant factor in the direction of this indicator. Looking at a chart of the SPX, 940 and 960 will be critical to watch.




- Joseph W. Sunderman (jsunderman@sir-inc.com)