MARKET IMPLICATIONS

The contrarian investor would currently ignore the Stoxx 600, buy the S&P 500, ignore the Nasdaq 100. The momentum investor instead would buy the Stoxx 600, ignore the S&P 500, buy the Nasdaq 100.

RSI oscillates between 0 and 100 with anything between 30 and 70 considered neutral, while we apply stricter limits instead (20 and 80) to identify extreme non-standard market sentiment. Different investors use the RSI output in different ways.

The classic interpretation of RSI is contrarian, meaning that overbought or oversold assets may be primed for a trend reversal: if overbought (above 80), excessive euphoria would invite to sell; if oversold (20), excessive pessimism would invite to buy, while neutral readings suggest fair sentiment with no peculiar tactical signals. Momentum investors instead would use any rising trend above 50 to participate into the upside, and vice versa any downward trend below 50 to avoid the downside.