Analysing the RSI on the DJI - what does it tell us?
So looking at the DJI on the monthly chart really reveals how exponential the runup of the US economy has been over the last decades. The Dow Jones basically grew +100% since the economic crisis in 2008 - currently sitting at about 25k. But I - as many others - have been started to wonder how far the DJI can run further up - and when it is time for a recession. These thoughts first came to my mind when we saw the huge amount of volatility at the beginning of 2018.
I started to analyse the DJI on a monthly chart and wanted to do some very basic analysis of the RSI, since that may give you a pretty good idea about how strong a market really is at the moment. These were the results:
As we all know, markets were pretty overbaught at the beginning of 2018 - which also is indicated by the RSI on the monthly chart, reaching an all-time high of about 89. This has virtually never happened in US history. Seeing that, I started to wonder how the RSI has been looking over the last 100 years - and I found the RSI to be particularly interesting when crossing the value of 85.
It has only done that a handful of times:
- 1929
- 1955
- 1986/1987
- 1997
- 2018
I think a lot of us are familiar with these dates:
1929: one of the biggest crashes ever hit the world ecomony with devastating effects on the whole world - everyone knows it as "the black thursday".
1955: not so widely known - but still: the stock markets went bearish around 1956/1957, even though it wasn't really that bad.
1986/1987: One of the craziest crashes ever, letting the DJI crash about 20% in one day. The DJI needed 15 months to recover from that.
1997: Just a few years ahead of the dotcom bubble burst, the RSI again crossed the value of 85. In the first quater of the year 2000, the dotcom bubble bursted and turned the DJI bearish for about 2 years.
2018: And the last time we crossed the value of 85 has been this year, leaving us with the question of what we have to expect for the future. Seeing how unstable the whole economy is at the moment, how the housing market is at the same levels as it has been in 2008, how the US national debt is higher than ever before, how emerging markets face one crisis after another (Turkey, Venezuela, etc.) and how devastating the trade wars could become, I definetly see more weight for the bearish side of the arguments.
I started to analyse the DJI on a monthly chart and wanted to do some very basic analysis of the RSI, since that may give you a pretty good idea about how strong a market really is at the moment. These were the results:
As we all know, markets were pretty overbaught at the beginning of 2018 - which also is indicated by the RSI on the monthly chart, reaching an all-time high of about 89. This has virtually never happened in US history. Seeing that, I started to wonder how the RSI has been looking over the last 100 years - and I found the RSI to be particularly interesting when crossing the value of 85.
It has only done that a handful of times:
- 1929
- 1955
- 1986/1987
- 1997
- 2018
I think a lot of us are familiar with these dates:
1929: one of the biggest crashes ever hit the world ecomony with devastating effects on the whole world - everyone knows it as "the black thursday".
1955: not so widely known - but still: the stock markets went bearish around 1956/1957, even though it wasn't really that bad.
1986/1987: One of the craziest crashes ever, letting the DJI crash about 20% in one day. The DJI needed 15 months to recover from that.
1997: Just a few years ahead of the dotcom bubble burst, the RSI again crossed the value of 85. In the first quater of the year 2000, the dotcom bubble bursted and turned the DJI bearish for about 2 years.
2018: And the last time we crossed the value of 85 has been this year, leaving us with the question of what we have to expect for the future. Seeing how unstable the whole economy is at the moment, how the housing market is at the same levels as it has been in 2008, how the US national debt is higher than ever before, how emerging markets face one crisis after another (Turkey, Venezuela, etc.) and how devastating the trade wars could become, I definetly see more weight for the bearish side of the arguments.
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