Riding The Gravy Train

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Monday, March 11, 2013

Sobering Stats, DJIA RSI Suggests Imminent Plunge

Currently the weekly RSI on the Dow Jones Industrial Average is reading slightly above 73.

The previous time it was over 73 was April 23, 2011. That marked the DJIA's closing high for the year at 12810. Six months later the low for the year was hit at 10404, a drop of 2496 points or 18.8%

In mid-February of 2011 the weekly RSI also crossed 73 when the DJIA was circa 12100, and in that instance the market went a little higher before tanking as noted in the paragraph above. 

In 2010 the weekly RSI only managed a high of 72.5 and at that time the DJIA was closing at 11205.  It's interesting to note that this too occurred in April.  Three months later a low of 9614 was hit, making for a drop of  1591 points or 14.1%

In 2008 and 2009 the weekly RSI did not get above 70.

In May of 2007 the weekly RSI hit the year's high at just above 73 while the DJIA was at 13690. Five months later what was until recently the all-time high was hit at 14198, however en-route to that high it first dropped to a low of 12518 in the middle of August, which was 1172 points or 8.5% lower.

After that October all-time high in 2007, at which point the weekly RSI was only 65, the market collapsed virtually non-stop for two-and-a-half years to 6627, a drop of 7571 points or 53.3%

We need to go back to December of 2003 to find another instance of the weekly RSI above 73.  The DJIA was then at 10350 and essentially went sideways for two years before continuing higher.  The subsequent low over those two years was 9708 while the high was 10960.

April 1999 is the previous time the weekly RSI hit 73. The DJIA was at 10500 and essentially went sideways for the next two years with a high of 11750 and a low of 9375 during that period. Afterward, from a high of 11350 in 2001 the market tanked to a low of 7198 in October of 2002. That was a drop of 4152 points or 36.6%

For a bit of balance we'll note that through the mid-90's the weekly RSI hit 73 many times while the DJIA enjoyed a multi-year bull market of historic proportions.

Arguably things were very different then, and very much more bullish economically in the U.S. and globally. Perhaps that matters. Perhaps not, and we somehow now find ourselves at the equivalent of 1993.

Whatever the case, based on this indicator we can reasonably expect at least a 1000-point drop in the DJIA before long. We note that this would bring the DJIA back to its current long-term uptrend as shown in red on this chart:


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