The record-setting rally in the Dow Jones Industrial Average may slow as it approaches a technical barrier, according to two investors citing trading patterns.
The 14-day relative-strength index for the Dow Jones rose to 68.9 yesterday, according to data compiled by Bloomberg. Readings above 70 indicate prices will probably fall. The Dow climbed to 14,354.69, its highest level ever.
“The RSI suggests it’s near the top of the range,” said Hideo Shimomura, who helps oversee the equivalent of $63.2 billion in Tokyo as chief fund investor at Mitsubishi UFJ Asset Management Co., a unit of Japan’s largest publicly-traded bank. “It’s early to say we have reached a peak.”
For Kim Youngsung at Samsung Asset Management Co., the indicator suggests there will be a “cooling down” in the stock market, he said. The Seoul-based company has the equivalent of $103.7 billion in assets.
The last time the relative-strength index was above 70 was every day except one from Jan. 22 to Feb. 1. The Dow was experiencing a five-week rally that ended Feb. 1, followed by a two-week decline.
In technical analysis, investors and analysts study charts of trading patterns and prices to forecast changes in an index, security, commodity or currency.
The relative-strength index measures the velocity of price changes to identify overbought or oversold conditions and turning points. A sell signal is usually triggered when the indicator rises past 70. An RSI value of 30 or less indicates it may be time to buy the asset.
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