Market professionals understand that you can’t find success using standard technical indicators with the default settings. RSI, Welles Wilder’s Relative Strength Index, is a popular indicator but traders applying this tool exactly as Wilder described in his original work will be disappointed.

RSI is designed to highlight periods of time when the market action reaches an extreme. The value of RSI can range from 0 to 100 although readings below 15 or above 90 are rare. Wilder suggested using 30 as a level to define oversold markets and 70 to define overbought markets.

The indicator is calculated with a default setting of 14 days but uses exponential moving averages in Wilder’s formulation which means no data is ever completely excluded from the calculation. With simple testing, we can determine if 14 days is a useful value to use when calculating RSI.

Testing buy signals when RSI falls below 30 shows that this indicator

Editor’s note: Tech Talk originally published as a research report by the Abu Dhabi Investment Company, which operates under the trading name of Invest AD. It is reprinted here with permission.

Gold breaks below $1,330 levels

Following U.S. Federal Reserve Chairman Ben Bernanke’s press conference that mapped out a timetable for ending quantitative easing in 2014, markets experienced a sharp sell-off. Yields rebounded, equities sold-off and metals resumed their downtrend. In April, Gold price broke down below $1,525 level to reach $1,330 levels and the metal has since been consolidating between $1,500 and $1,330. The beneficiaries of quantitative easing have been precious metals and reversing this resulted in further weakness. Gold broke down the previous three-month consolidation and reached 1,270 levels. Price fell below April’s low levels, which will now become a resistance at $1,325; price should move above this level for the technical outlook to improve. Unless price recovers above $1,325,

After analyzing major sentiment tools, intermarket principles and Elliott Wave, we reach the conclusion that the end of the bull market is not too far in the future. In this article, we show that a variety of indicators are showing an extreme level of optimism but the most important indicators are associated with “timing the market” and these are bearish as well.

Our advice for the medium to long term is summed up as “sell the dollar; sell equities; sell the Nikkei; long Japanese yen; long Australian dollars; and long commodities.” Now, we’ll look at the charts that led us to those conclusions.

1. Margin Debt

Margin debt levels, and their rate of change, are sometimes used as an indicator of investor sentiment because margin debt rises when investors feel good about the prospects of the

Derek Hernquist is a Portfolio Manager at D. Scott Neal, Inc., where he focuses exclusively on implementing an ETF-based Tactical Asset Allocation program for the firm’s investment clients. He studies price action across multiple time frames in search of sectors and asset classes transitioning from one phase of sentiment to another. Derek believes that big moves start with early clues, and equity markets give us the ability to spot when the underlying components begin to leave those clues for us.

His philosophy was shaped by years spent observing clients, first as a stockbroker and then running a retail trading desk in the late 1990s. These experiences led him to combine behavioral finance with his math background to more objectively measure the collective psychology of the market. The following chart is an oversimplification of his general philosophy but clearly explains the dynamics of supply

CHART PROVIDED BY TRADE NAVIGATOR