Sears: Follow the Bouncing RSI

On January 7 Sears Holdings, $SHLD, was showing a sharp decline in the chart. The decline was so fast that a momentum measure, the Relative Strength Index (RSI), dropped to 12. This indicator can only move between 0 and 100. The closer it gets to either 0 or 100 the harder it is for it to continue in that direction. Most technicians use measures of 30 as being over sold and 70 as being overbought. So a drop down to 12 is very oversold. That is where the chart was on

Sears Holdings, $SHLD

January 7th when I posted the above chart with the caption stores suck but come on, RSI is 12!!! The RSI can correct through time or by price reversing. So these extreme measures off a potential trade opportunity. And in January it ended up being a doozy. Rising from 30 to 77.63 where it closed Thursday. Now it is in the opposite situation offering an opportunity to trade it lower. The chart below also shows it also happens to be at resistance, adding weight to a

Sears Holdings, $SHLD

potential correction in price. Look for the pullback to begin and then ride it lower to support at 68 or the Simple Moving Averages at 60 or the gap at 55. There is no guarantee it will fall but the history in the chart shows it is not unexpected.

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The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.

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