Monday, December 5, 2011

Today's Action

Prices have now reached newly overbought levels on the stochastic indicator. Combining the stochastics with the RSI indicator allows for a better entry point when shorting.  Usually as prices continue their ascent the stochastic indicator will reach overbought levels before the RSI. It will then turn sideways remaining at 80 or slightly above 80. As this occurs, the RSI will soon after climb higher to reach overbought levels. Key things to watch for are negative divergence in the RSI, which is a series of lower highs. As soon as the stochastics break below 80, the RSI will follow, and your sell signal is given. This is what occured in the market prior to the recent sell-off. Look for that to set-up to evolve in the short-term.

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