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You can produce consistent gains by rigorously buying and selling stocks using the relative strength index (RSI). Let me explain.

What Is the Relative Strength Index?

Investopedia describes the relative strength index (RSI) as a momentum indicator that measures the magnitude of recent prices changes to evaluate overbought or oversold conditions in the price of a stock and is displayed as a line graph that moves moves between 0 and 100.

When the RSI of a stock reaches 70 (a conservative reading of as low as 65 is acceptable in some circumstances) it means that the stock is overbought and that a pullback is coming and, as such, that the time has come to sell the stock.

• Conversely, when the RSI of a stock reaches 30 (a conservative reading of as high as 35 is acceptable in some circumstances) it means that the stock is oversold and is likely to bounce higher and, as such, that it would be a good time to buy the stock if your independent due diligence suggests that the stocks financial and market prospects so warrant doing so.

How To Use the RSI

The RSI changes throughout the trading day as the stock price changes. To find the current RSI of a stock you are interested in:

• go to StockCharts and enter the stock symbol in the small bar in the top left-hand corner of the chart.
  • The RSI is tracked along the top of the chart and highlighted when:
    • it falls to 30 and below (undervalued)
    • and rises to 70 and above (overvalued).

Recent BUY/SELL Trade Returns

Eight (8) AI stocks declined to, or below, the RSI of 35 in the past month only to subsequently rise to 70 or above. As such, they were sold ( hypothetically) and they are listed below with their buy date and price, sell date and price (as of last Friday, May 24th), and the percentage return generated:

1. Innodata (INOD): Bought April 22nd @ $5.69; Sold May 8th @ $10.47; Return of 84.0%
2. Nividia (NVDA): Bought April 19th @ $762.00; Sold May 23rd @ $1,038.00; Return of 36.2%
3. Lenovo (LNVGY): Bought April 18th @ $20.78; Sold May 13th @ 26.02; Return of 25.2%
4. CrowdStrike (CRWD): Bought April 19th @ $282.64; Sold May 15th @ $343.12; Return of 21.3%
5. Taiwan Semi (TSM): Bought April 18th @ $132.27; Sold May 23rd @ $160.00; Return of 21.0%
6. monday.com (MNDY): Bought April 15th @ $184.25; Sold May 15th @ $220.72; Return of 13.1%
7. Baidu (BIDU): Bought April 19th @ $106.99; Sold May 6th @ $120.13; Return of 12.5%
8. HP Inc. (HP): Bought April 28th @ $27.79; Sold May 13th @ $29.92; Return of 6.3%

The above BUY/SELL spread amounts to an average return of 28.0%.

Stocks Bought At RSI Of 30; Waiting For RSI of 70 Before Selling

The following 5 AI stocks fell to an RSI of 30 or so on the dates identified and are now slowly approaching an RSI of 70 or so at which time they should be sold to capture the gains realized.

1. Synopsys (SNPS): Bought April 19th @ $510.70; Current RSI of 66.2 (Sell now @ a 15.0% Return)
2. United Microelectronics (UMC): Bought April 19th @ $7.40; Current RSI of 65.6 (Sell now @ 15.8% Return)
3. Verses (VRSSF): Bought April 19th @ $0.80; Current RSI of 63.8
4. Microsoft (MSFT): Bought April 19th @ $399.04; Current RSI of 63.3
5. Monolith Power (MPWR): Bought April 19th @ $178.07; Current RSI of 62.1

Please note that the RSI analysis can be applied to any stock you are interested in not just those analyzed above.

Summary

Buy those AI stocks whose RSIs decline to 35, and preferably to 30, or below and then hold them until their RSIs rise to 65, and preferably to 70 or above, and then sell them. It’s that simple!

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