The Relative Strength Index, or RSI can be an effective tool in identifying oversold or overbought conditions, crossovers, and divergences for a security. The Relative Strength Index was developed in 1978 by J. Welles Wilder to measure the relative strength of a security’s current price compared to its historical price over a predetermined number of periods.
The RSI indicator is a fantastic tool for buy and sell signals, it is best utilized in addition to other indicators such as the Slow Stochastic, and the MACD. This indicator provides investors with a way to spot an index or security that may be reversing direction. An overbought condition is signaled when the RSI rises above 70, and could indicate that an investor should be ready to close their long position.
On the other hand, an RSI that has fallen below 30 indicates that a security may have been oversold, and signaling to investors that they should be ready to buy. Stocks with improving RSI will exhibit a buy signal as the RSI rises above 30. This is particularly true when the long term trend is up, creating potential entry points as the RSI climbs above 30.
The Relative Strength Index can work to make an investor aware of oversold or overbought conditions in the market, but investors should be mindful that in shorter time frames the likelihood of false signals increases. The following securities have technical indicators signaling oversold conditions, and these stocks with improving RSI may prove to be a valuable addition to your portfolio.
In addition to a stock’s RSI, it is important to consider the open interest of options contracts, watching for a decrease in the Put/Call ratio. An increase in the number of call option contracts could be an additional indicator that a stock is set for an upside rally.
Stocks With Improving RSI: Coffee Holdings (JVA)
When looking at stocks with improving RSI for your portfolio, it may be a good idea to take a look at Coffee Holdings (JVA), a food service company that engages in manufacturing, roasting, packaging, marketing, and distributing roasted and blended coffees in the US and Canada.
The United States consumes over 400 million cups of coffee a day, making this a $30-billion industry. In addition, coffee is one of the most actively traded commodities in the world, and has risen in price steadily since early 2002, rising 410% through its May 2011 highs.
While JVA fell victim to a global equity sell-off in August, falling by over 20%, this company could enjoy wider profit margins thanks to falling coffee prices, and also boasts a dividend of 1.33%, making it an excellent source of dividend income and upside potential.
Stocks With Improving RSI: Tertiary Minerals (TMY)
If you are looking for exposure to minerals as well as stocks with improving RSI, you may want to consider Tertiary Minerals (TMY) for your investment strategy. Tertiary Minerals engages in the identification, acquisition, exploration and development of mineral projects primarily in Saudi Arabia, Finland, Norway and Sweden.
Benefiting from falling costs, Tertiary Minerals was able to narrow its losses in March of 2011, and pre-license exploration costs fell, while the company recorded no impairment of deferred exploration costs during the period. The company’s primary focus is in fluorspar – a halide mineral made up of calcium fluoride – while also mining for gold, iron and tantalum.
With net assets doubling over last year, and the rising price of acid grade fluorspar, Tertiary Minerals could have upside potential in the coming months. Watch for buying opportunities in the coming days as this stock appears to be oversold from its highs of over $9, and is currently trading around $4.20.