Nifty Index – RSI Indicator recently spiked above 80+ levels and it is not a frequent event in the markets. Technically these levels are considered as overbought levels. But does it mean overbought? I thought why not do a simple analysis when every time RSI(14) in the Nifty index crosses above 80?
Since the start of 2010 we had 10 occurences in the past where Nifty 50 index RSI levels crossed above 80. Plus we have a recent occurrence of RSI crossing above 80 on 4th Dec 2023 as shown below
| Date | RSI | Return_5d(%) | Return_10d(%) | Return_20d(%) |
|---|---|---|---|---|
| 2010-09-15 | 80.01 | 2.22 | 2.22 | 6.36 |
| 2014-04-02 | 80.23 | 0.65 | 0.96 | -1.48 |
| 2014-05-19 | 81.07 | 1.31 | 1.36 | 3.72 |
| 2014-06-09 | 80.59 | -1.58 | -2.11 | 1.73 |
| 2018-01-23 | 82.11 | -0.51 | -5.48 | -6.32 |
| 2020-12-17 | 80.77 | 0.06 | 2.02 | 5.04 |
| 2021-01-12 | 80.92 | -0.29 | -4.09 | 3.73 |
| 2021-08-31 | 82.49 | 1.34 | 2.26 | 3.38 |
| 2022-08-12 | 80.48 | -1.17 | -2.18 | 2.10 |
| 2023-07-20 | 80.57 | -1.60 | -2.99 | -3.35 |
| 2023-12-04 | 81.84 | ? | ? | ? |
This table presents the RSI data alongside the returns for the next 5, 10, and 20 days, for the dates where the RSI crossed above 80.
The 5-day, 10-day, and 20-day returns show a mix of positive and negative outcomes. There doesn’t seem to be a consistent pattern in terms of price movement direction following these RSI crossing events. The returns vary significantly, indicating that other factors might be at play influencing the index.
These observations highlight the importance of considering additional market context and technical indicators when making trading decisions based on RSI readings. RSI is just one tool among many, and its signals are most effective when used in conjunction with other forms of analysis.
