Trade Savvy. The RSI’s “Swing Rejection.”

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JULY 1, 2020
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Only

money moves share prices so track that money. RSI is the King hell money monster hound. It’s a ticker-tape parade of clues raining down all over us.


Piles of top-shelf tools lay all about us daily. All we have to do is make them ours.  The truly savvy are trade-building with dashboards of tools everyday. The savvy up their game. Dashboards of great tools mean deeper looks, more insight, sharper shooting.


Knowing more means more, for you. We’re bringing exactly that. Relative Strength Index signals scope you deep into any and all trades. Multiple ways yo. How now? The bullish/bearish “Swing Rejection.” We’re bringing that along with some of our big paying friends; Fair Isaac, Zoom, Advanced Micro. We’re bent on expanding our “TRADE SAVVY. The RSI’s “Swing Rejection.”

 

 

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Who

doesn’t love a better view?  Who rejects a better look?  Trading isn’t about stacking your cash on a stump and hoping something good will happen while your back’s turned.  Savvy investing’s all about calculation.  Space X doesn’t launch vehicles into the cosmos simply hoping to hit the space station.  Calculation.  Technicals offer calculation otherwise impossible.  That’s why we do it.  Only money moves shares so we concentrate on the moving money.

 

Money only moves in two directions; buying and selling.  Thus directional clues are good.  Stacking directional clues is even better.  The Relative Strength Index(RSI) is a momentum indicator.  Buying and selling build then lose momentum.  That’s what the RSI does.

 

RSI readings span from I to 100.  Readings above 70 indicate an “overbought” condition.  Readings below 30 indicate “oversold.”  In practice, experience shows that readings between 80 and 20 often mean more.

 

Buying lower means looking for “oversold” readings–below 30, closer to 20.  Clearly, when selling, we like overbought readings, anything above 70, or even 80, depending on what the RSI history tells us.  Reading the RSI history of the particular stock of interest will demonstrate at what overbought level sellers are likely to pile in.  Same for oversold.  There’s more.

 

     

-Advanced Micro Devices-

AMD Swing rejection. 7-1-20
The AMD chart offers a clear view of the bearish RSI “Swing rejection” formation.  Box: the signal drops from the overbought range, reverses, peaks, and drops again, to a lower low. In an even more bearish condition it would continue further down(SJChart.)

RSI

patterns offer more than ups and downs, OB and OS.  Box above.  The RSI also offers the bullish and bearish “Swing rejection” pattern.  On the AMD chart we see the RSI dropping from well above 70, the overbought threshold.  It V’s, peaks, then drops even lower.  That’s the key–a lower low then the previous.  Such action forms the bearish down-sloping trendline,

 

Nearly simultaneously the MACD bearishly crosses under its’ signal line.  Yet that bearish signal carries no weight as it’s flattish and tight to the red signal line.  But then it bends more sharply back above the signal and rises more steeply, just as the price action begins moving up to a new peak.  The sharpness of that crossover and rise are convincing, when coupled with the RSI going almost vertical.  The combination is a real tell.

 

 

The RSI “Swing rejection” occurs more often in choppy markets or periods of consolidation.  The point; a simple rising or falling RSI doesn’t signal a more extensive directional price move.  A swing rejection is a stronger up/down clue, much like a failure at support or resistance challenge.

 

How is AMD now?  AMD is bound-up in a tight trading range, as the channel lines indicate.  The MACD is tracking beneath the signal line, but flattish.  Shares are down 1.6% over the past month, and up 13.8%YTD.   Its’ technical condition is weak, as it just punched through both its’ 20 and 50 day SMAs.  It did bounce off the 200.  We caught it at $48.90 on Monday.  We expect lower prices ahead.  We love it below $49.  The gaming refresh cycle is coming during the back half of this year.  That’s a buying catalyst.

 

 

-Zoom Video Communications Inc-

ZM, 7-1-20 Bearish Swing rejection
Since our last piece we’ve been awaiting a pull-back in ZM. The chart pattern clearly calls for a meaningful retreat. It’s shown only  a wiggle(SJChart.)

Figures

1 and 2 illustrate bearish RSI swing rejections.  The circles above display the corresponding price declines.  Figure 3 mimics the pattern while 4 only hints.  Line 5. indicates the rising patter of higher RSI lows.  Bullish.  Again, we fully expect Zoom to correct, soon.  The chart displays four such in a rhythm.  The circle on the left represents a 23% decline.  We’re waiting.  In our view, Zoom’s yet a buy on a double-digit drop and no bad news.

 

 

-Fair Isaac Corporation-

FICO, 7-1-20, Bullish Swing rejection fakeout
FICO’s chart displays a swing rejection fakeout, with a tell(SJChart.)

In

FICO’s case the RSI rips a bullish swing rejection, but then reverses once again, down into chop.  We offer this because no pattern is by itself wholly reliable, ever.  Thus stacking signals is the way.  Circle above.  The MACD is tracking below the signal line, one of the most reliable bearish indicators.  The price-action comes straight down.  The MACD indicates this weakness ahead in three ways.  1. It’s tracking beneath signal.  2. It’s separated from that signal line.  3. It’s in decline.  Together they clearly say “Don’t buy.”

 

 

FICO, April 8
SJ made a call on FICO back on April 8th. As of this morning, July the 1st, it’s trading at $418.04, pre-market. That’s a 39.2% move since our call.  FICO’s a company worth keeping.  But it’s now run too far and is too expensive here.

Traders

want results, at little risk.  Trading’s about a reward soon.  And why not?  Charts are amazing in the process of making those trading calls.  We called out FICO in a piece launched on April 8th, “FICO.  Still Scoring.”  Find a link to that piece below.  Since then FICO’s climbed 39.2%, or $117 a share.  Why?  It’s a financial without being a bank.  It’s also amazing.

 

FICO’s a financial infrastructure play with no “net interest margin(NIM) problem, no loan loss exposure, no loan provision requirements, and no federal stress testing cavity searches.  Yes, it has a downside.  42% of FICO’s business is consumer credit scoring.  Most expect consumer spending weakness in the back half of the year.  But we wouldn’t sell it.  Why don’t we own it now?  We lost patience, just before it began a more than $100 dollar a share run.  We’re still waling that one off.  As always, good luck and good investing.

 

 

Tune of the Day

I’ll Remember April”

https://www.youtube.com/watch?v=xlXCRwck32k
Flamingo
Michel Petrucciani and Stephane Grappelli; Flamingo

 

 

 

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Additional resources:

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