RUSSELL 2000 RSI REACHES RAREFIED AIR

Monthly RSI on the Russell 2000 index is now at 74, which is higher than all but a few instances in the past 25 years:

Here are the prior instances where Russell 2000 RSI was as high as it is today, and how long it stayed above that level:

  • July 2 – Sept. 4, 2018: Two months. Gain over that span: 4.05%. The index then dropped starting in September and ending in December. And then a little more than a year later you had the Covid crash. Verdict: bad time to buy โŒ.
  • Oct. 1, 2013 – Jan. 2, 2014: Three months. Gain over that span: 8%. The Russell would basically go nowhere until mid-late 2016. Verdict: bad time to buy โŒ.
  • May 1, 2007: Less than a month. The index hit a high, then began declining into what would ultimately be a -60% bear market during the GFC. Verdict: bad time to buy โŒ.
  • Feb. 1 – March 1, 2000: Final high before the Dot Com bust. Russell 2000 lost 46% over the next three years. Verdict: bad time to buy โŒ.
  • March 1 – May 1, 1998: RSI stayed elevated for a couple of months but no real gains. Russell would then enter a massive correction of nearly 40% over the next 5 months. Had you bought into the Russell here and somehow held through the massive correction, you would’ve made 19% by early 2000. Verdict: bad time to buy โŒ.
  • August 1 – October 1, 1997: Two months. Had you bought and then held right in early August, you would’ve gained about 16% until the 1998 correction started. This one’s tricky to evaluate because if you bought with a plan to hold for a year, it was a bad buy. If you bought and held for three-ish years, it was a good time to buy. If you had the foresight to sell right at the top in March 2000, you could’ve locked in 40% gains, but if you held on until November 2000, your gains would’ve dropped to just 8% over a more than three year span. Verdict: bad time to buy โŒ. I say this because there were better places to park your money during the late 1990s.
  • July 1995 – June 1996: Technically the RSI dipped below the 74 level briefly, but the market was going up the whole time. January 1995 until basically about April 1998 was a great time to be invested in small caps. Even if you bought when RSI hit 74 on the Russell, you still would’ve made 71% on your money if you held for 3 years. Verdict: great time to buy โœ….

Altogether, buying the Russell 2000 at an RSI of the current level of 74 has not really worked out well. In my view it’s 1 for 6. Not great.

I think the Russell 2000 is a sell right now.

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