The history of the Dow RSI
Above is the RSI for the Monthly Dow chart with the RSI setting on 14. There is something very interesting in what we see here, the RSI reading for the monthly chart has never been this low other than three important dates, 1934, 1974, and now 2008.
This might give us a guide in that if this trend is true, the market should rebound greatly after quickly reaching an RSI value that is generally considered oversold. Add in the bailout and other infusions of capita and the possibility for a market rebound from here seems possible. The 2009 Federal Deficit has soared to a likely $2 Trillion of which about 75% will be dedicated to stimulating the economy and putting capital in the banking system.
The government will do anything it needs to do to prop up the financial markets. Bernanke being a “student of the depression” means Wall Street will get all the capital it needs as it is well accepted that the Great Depression was the result of a 33% cut in money supply by the young Federal Reserve. Bernanke has stood by every bailout, every lending program to banks and will continue to favor propping up the markets before letting the free market weed out the losers.
If we start to see some direction and stability arising from the next week of trading then a bullish position could be a possibility soon. But with lower trendlines and a limited amount of support at the current level, buying here makes little sense. When it is time for a buy, it should be done with options only to minimalize the possible losses in a worst case scenario.
