The power of technical analysis. (repost from 3.3.10)

(First published 3.3.10, 1:27PM EST)

I’ve noticed lately how well the 60-min RSI (relative strength index — a measure of oomph in price movement) has been doing, so today I decided to quantify it. The result is simply spectacular, even with a mechanical buy/sell decision that always had you in the market either long or short.

Here is a 60-day chart of the Dow, by 60-min bar. The circles are negative RSI crosses (red arrows on the bottom) and the boxes are positive crosses (green arrows). The numbers are the Dow points one might achieve by riding Dow futures from the previous signal using the signals alone, with no stop-losses. Additional signals do not add to the position, and the trade is reversed on the next opposing signal.

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I tried to be conservative with those point totals (not buying or selling top or bottom tick), and some of those moves may have been missed due to opening gaps (where the price has already moved so far by the time of the opening bell), but you get the idea. It comes out to 1425 Dow points, even having been short for the whole 500 point drop in late January, which a stop-loss could have prevented. A single mini-dow futures contract, symbol YM, requires a margin of $6825 and is worth $5 per Dow point.

Now, this is hardly a perfect reflection of actual trading, but just mechanically trading a simple signal is infinitely superior to trying to outguess the crowd based on mumbo-jumbo like the Greek situation, Barney Frank, Obama this or that, oil prices, GDP, consumer data, or any other nonsense.

Now, I don’t have to tell explain any further why I think the market will probably fall by early next week.

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