RSI Can Be a Foreshadowing of Things to Come
Overbought Signals You Can’t Ignore in Volatile Markets
On the daily Investor’s Compass post, we track over 350 equities and ETFs, highlighting both their Zone level and Relative Strength Index (RSI). These indicators help identify potential opportunities and risks in individual securities—providing insight into whether an action is warranted.
📊 What Do These Indicators Mean?
Zone Level → Shows where a stock is within a longer-term trend, identifying potential downside risk or upside opportunity
RSI (Relative Strength Index) → Measures whether a stock is in an overbought (>70) or oversold (<30) condition based on recent price changes and momentum
RSI Flashing a Warning Before the Drop
On February 19, 2025, the S&P 500 closed at $612.93. Less than a month later, by March 13, 2025, the index had dropped 10%.
Our data showed that on February 19, 32 stocks had an RSI of 70 or greater, meaning they were in overbought territory. What happened next?
📉 78% of those stocks were lower by March 13
📉 34.4% of them (11 stocks) saw declines greater than -10%
📉 AppLovin (APP) had the largest decline, dropping -45%
Let’s take a deeper look at APPLovin Corporation (APP) specifically. On 2/19, APP was priced at $496 putting it in overbought territory with a Zone of 3 and an RSI of 76.04 — probably not a great buy at the time. Fast forward to 3/13 and APP was priced at $272 with a Zone of 1 and an RSI of 37.4 — approaching oversold territory and looking a lot more like a good buy. You can see the shift visually in the chart below.
The RSI isn’t a crystal ball, but it can serve as an early warning signal when stocks are reaching extreme conditions that may indicate strategic buying or selling opportunities. In volatile markets like today’s, early detection makes all the difference!
Let Investor’s Compass be your guide as you continue to navigate these volatile markets!