I'm not long any stocks at this time. Although I do play the market both on the long and short side, 95% of my trades are short sales. My strategy is different than most obviously, since true short sellers make up a very small percentage of the overall market. "One" of the reasons that I'm a short seller is because the market goes down 3 to 4 times faster than it goes up, and since I"m a "short term" trader, I like to be in and out of stocks in a short time frame............I do many daytrades, and some positions that I hold for not longer than a few days if I can help it. I use the same strategy when I open long positions in stocks.....I like to exit the positions in a short time frame.....again, sometimes a daytrade, and sometimes a few days.
When I buy long, I don't chase stocks, and I don't buy on breakouts or at the top. I buy when everyone else is selling.....and I sell, or sell short when everyone else is buying to an extreme..........hence I will buy when the market is selling off hard. I was buying stocks on March 4th, 5th, and 9th........after the market had been down 6 out of 7 trading sessions. I do the opposite of the herd.....when the herd is selling, I'm buying....when the herd is all buying and the market, or individual stocks have reached extreme levels on the upside, I'm shorting them.
The RSI is just one of the indicators I use when making a judgement whether or not to open a position on a stock.......and it is one of the most reliable and accurate indicators of overbought and oversold conditions.
I had never traded MIDD before a couple days ago, when it appeared on my radar screen while looking for overbought stocks.
Despite what anyone on any of these boards says........NO stock has ever been able to maintain a RSI value over 80 for very long. And when the RSI does get up that high, the stock falls severely in the weeks to come. This can be verified by looking at charts....you don't have to believe me.....you can check for yourself.
Even the mighty Google couldn't maintain a RSI over 80. The RSI for Google was over 80 back in November of 2007.....at the time, the stock was above $700 a share. By March of 2008, it was $425 a share. Like I said, the RSI is very accurate.
So there was no reason to believe that MIDD would be able to hold its very overbought condition when the RSI was above 80.......and as everyone found out today......it couldn't hold that value.
I covered all my existing short positions today, and took two new very small short positions late in the day in UPS and APOL. I may add to them, or cover them tomorrow. The reason for establishing short positions in those two stock is not related to their RSI....it's due to other research reasons. Not many stocks ever get an RSI over 80, so there are other factors that also must be considered. But when a stock does get a RSI value over 80, it becomes a absolute short candidate.
I made my short term money in MIDD......I'll may be back, depending on where it goes from here.
And once again, I'm not long anything......but that could change at a moment's notice.....just depends on market conditions.
Don't know if any of that helps. Everyone has their own style. Mine works for me.