27 February 2008

DXD Buy Signal - Red Means Go and Buy

Click on the above image to enlarge.

At a quick glance, I hope you can see on the above chart the increased presence of red and pink tones, as we move from left to right, from February 19 to February 26.

The Dow continued its upward trajectory today after a lower first hour. Once the RSI(2) of the DJIA broke 90, I placed an order for shares of DXD, which filled at $54.48. The Dow closed the day with an RSI(2) reading of 92. This straightforward technical measure shows the Dow to be short-term overbought, and the market should pull back soon, making the purchase of the ultra-short Dow fund profitable.

Looking at the chart, 11 out of 30 Dow components closed in the red (RSI(2) >=90). Another 8 out of 30 Dow components closed in the pink (RSI(2)between 80 and 90).

Does this mean the Dow will drop tomorrow? Not necessarily. Overbought (and conversely, oversold) conditions can persist for several days, but it's obvious if you look at previous Pig posts that I indeed glean valuable insight from the two-period RSI.

The following annotated chart shows the purchase price level of DXD, and the price level where I will consider selling in the short-term, if the market moves accordingly. I'd be chuffed with that corresponding gain of between 9% and 10%.

Click on the below image to enlarge.

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