|Relative Strength Indicator (RSI) -
The Relative Strength Indicator (RSI) provides a measure of the strength of a stock’s recent price movements relative to a comparative market index. For U.S. markets (NYSE, NASDAQ, AMEX), U.S. indexes, and international indexes, the comparative index is the S&P 500 Index. For the Toronto Stock Exchange, the comparative index is the S&P/TSX Composite Index.
The RSI is made up of two parts, a numerical value followed by a ‘+’
or ‘–‘ sign.
The numerical value is indexed to a base of 100 for easy comparisons, and is calculated by comparing a stock’s price movement relative to the comparative market index over a period of 13 weeks. Stocks with an RSI above 100 are outperforming the comparative market index over the 13-week period, while those with an RSI below 100 are under-performing the index during that period.
For example, a stock with an RSI value of 115 has outperformed the market by
15% over the past 13 weeks, while a stock with a value of 85 has under-performed
The RSI value is a momentum indicator – it will often oscillate over
time as the stock price advances, stalls, or falters. Generally, stocks with
a rising RSI value can anticipate even further price advances.
The second part of the RSI is based on a stock’s price movement relative
to the comparative market index in the most current week. A stock that has out-performed
the market index for the week would be tagged with a ‘+’, while
any stock that under-performed the market index would be tagged with a ‘–‘.
For example, if a stock has advanced 8% on the week, while the market advanced
only 3%, the stock would have a ‘+’ beside the RSI value. If a stock
advanced only 2% and the market advanced 3%, it would display a ‘–‘
beside its RSI value. Alternatively, if a stock declined 3% on the week, while
the market declined 5%, the stock would qualify for a ‘+’ beside
the RSI value, denoting its relatively superior performance. However, if the
stock had declined more than 5%, it would show a ‘–‘.
As a further example of both parts of the RSI, given a stock with an RSI of
87+, the value 87 indicates that the stock has under-performed the comparative
market index by 13% over a 13-week period, but has outperformed the same comparative
market index during the most recent week.
The (+/-) relative strength indicator is extremely useful in both advancing
and declining markets, as it isolates stocks that are not moving with the prevailing