Special Report: C-RSI (Zero based Relative Strength Index)

Charts can be confusing ... can't they?

Take the Relative Strength for example.   It moves from 0 to 100.  The half way point has to be ascertained visually, because 50 is a critical level.  So, you have to watch for 51 or 49 to know when you are above or below that critical mark.

Doesn't it just make more sense to subtract 50 from the index and calculate a new index based on that? 

For example:  A RSI reading of 50 (neutral) minus 50 would reset the the base line to zero.  So zero would become the base line, and any movement above or below it could be seen visually without even looking at the number.   That is why we reset many indicators to a zero base ... so we can see them fast and efficiently without any required interpretation.

Let's take a look at a Zero based Relative Strength on the NYA index for the past couple of years.

The chart below shows our C-RSI (Zero based Relative Strength Index) from May 2005 to October 2007.  Note how easy it is to note when the Relative Strength is positive or negative.  And, especially note how a Zero based RSI correlates with the markets rallies and corrections.  (One more thing ...note the line and arrow.  It clearly shows the Decline in Relative Strength as the market continued higher in 2007.  This is known as a negative divergence.  We all know what happened afterwards - the market peak on the NYA Index was October 11th, 2007)   See the next chart ...

We know you are curious about what this chart looked like after late 2007.

So, here is the chart.   Note how our zero based RSI goes below the horizontal zero line when it is negative.  Easy to see and read, isn't it?

So, other than a brief period during April and May of 2008, our zero based RSI was negative since then. 

One more thing ... note the line and arrow where you are starting to see the Zero based RSI at higher levels as the market moves lower.   This is a rising Relative Strength, also known as a Positive Divergence. 

No one knows how much of a Positive Divergence has to be built up to turn this market around, but you can see that the process was beginning ... and that increases the odds for the upside.   (As everyone now knows, that divergence was the beginning setup for a market bottom and turnaround.)

We hope you enjoyed today's explanation of our C-RSI indicator.  (If you have not joined us as one of our paid subscribers yet, give it some thought, as I am sure you would enjoy it.)

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