We’ve been following a forecast that combines a proven analog, several major price channels and some important harmonic patterns. One interesting aspect we haven’t looked at for a while are the RSI channels.
Like price movements, I’ve found that the market’s RSI tends to move in channels, which makes it somewhat predictable. Without getting into why it works, it’s pretty obvious that it often does — although I rarely come across other analysts who use it to the extent that I do. It’s particularly useful in signaling reversals and breakouts/breakdowns.
Consider SPX’s daily RSI. The nearly flat big white channel is the one channel that’s contained everything for the past two years. Note how often we had reversals at the interior channel lines — especially the (dashed) midline.
The rising purple channel has guided the action since 1101 in August 2011. Within it, we’ve had several well-defined channels that made some of my best forecasts possible. The falling yellow channel between January and May 2012, for instance, helped construct an analog that enabled me to correctly forecast the drop from 1422 to 1292 and return to 1474 [see: New Analog and Analog Update.]
The rising red channel since 1291 in mid-May, kept us on track to our upside target of 1472 in mid-September, and the overlapping rising white channel helped confirm our decision to short the market at 1474 on Sept 14 [see: The World According to Ben.]
So, when RSI channels whisper in my ear, I listen. Right now, it’s more of a dull roar.
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