Here’s a quick rundown on the various indices in terms of their RSI. Stockopedia was used to obtain this information.
UKX normal, off overbought levels
MCX oversold, and dipping below its 200dma
AXX oversold, and below its 200dma
T1X normal, but below 200dma
It would be interesting to see if a contrarian strategy based on various indices would prove to be a useful one. Ideally, you would want markets to keep rotating between the indices, so that you could keep contra-rotating.
No strategy is perfect, of course, and there could be a danger that one is following a strategy that worked until recently. Witness momentum strategies, for example. They would have produced excellent returns until March, when they started to hit speed bumps. Perhaps investors should have a toolkit of growth, value, momentum, and contrarian, and try to decide which one is likely to pay off the most.
Although the Footsie is not in overbought territory, it is off its overbought levels. Be careful here, as it doesn’t mean that the Footsie is buyable. Looking at the charts, I have seen that the opposite is quite often the case, where we are beginning to see a downtrend.
The HIX – higher yield index – is overbought, and looks ripe for a correction. The HIX is something of a mixed bag of companies, and appears to comprise of a soup of defensives and cyclicals. So it’s difficult to reach any firm conclusion as to what sort of companies one should avoid. The index has an extended run since about mid-March, so it’s as well to avoid this sector.
Contrariwise, the AXX – AIM All Share – has been doing the opposite. It’s interesting to note that Stockopedia ran an article on 14 May, (http://is.gd/AhpyO8) with the headline “Cooling prices bring Slater Zulu stocks back in play”, and note that “a slight dip in prices over recent weeks has caused the Zulu screen to begin filling up again”.
Update 17-May-2014. As an experiment, I’ll compose a portfolio of 5 shares from the AXX whose market cap is at least £100m, and take the highest Stockopedia stock ranks. I obtain the following shares: CNKS 157p, DTG 259.2p, IPEL 460p, RNWH 240.5p, VTU 59.5p. The prediction is that I’m expecting them to beat the UKX, which currently stands at 6856. I will report back in due course.