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Here’s What the Relative Strength Index Reveals About the Euro Stoxx 600

A major global stock index performs this notable feat in “record time”

by Bob Stokes
Updated: December 29, 2020

You've probably heard the saying credited to the 18th-century nobleman Baron Rothschild: "The time to buy is when there's blood in the streets."

Put another way, stock markets the world over bottom when fear is running rampant.

Hence, it takes a lot of financial courage to invest at such times, but for those who do, the rewards can be life-changing.

However, here at the end of 2020, we have the opposite situation to fear in one of the world's major stock indexes.

Our December Global Market Perspective explains with this chart and commentary:

OversoldOverbought

The Relative Strength Index (RSI) -- a momentum oscillator based on the speed of price changes -- went "from oversold to overbought in record time."... After [a big Elliott] wave down produced one of the most oversold conditions in stock market history, [the following] wave up generated an overbought condition that exceeded the February 19 high. The RSI vacillated during [the sideways to down wave that followed], while [the most recent wave up] pushed the RSI back above 20, which is its most overbought condition since early June.

Does this mean that the price of the Euro Stoxx 600 will plummet from here?

Perhaps -- but not necessarily. Meaning, stocks can remain overbought (or oversold) for a time.

A more precise way of ascertaining the next big move for the Euro Stoxx 600 is to study the index's Elliott wave structure.

As the Wall Street classic book, Elliott Wave Principle: Key to Market Behavior, by Frost & Prechter, says:

What the Wave Principle provides is a means of first limiting the possibilities and then ordering the relative probabilities of possible future market paths. Elliott's highly specific rules reduce the number of valid alternatives to a minimum.

Find out what "Elliott's highly specific rules" suggest is next for the Euro Stoxx 600, as well as other major global stock indexes.

You can do so by reading our Global Market Perspective. Follow the link below to get started now.

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