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THE MARKET WHISPERER 21 5

which are the two RSI lines of extremes at 30 and 70. As seen in the chart,
you can find three points where the indicator is warning of transition,
above or below the extremes. At [1], the indicator fractionally crosses
over 70, i.e., it is indicating a top, and it is right. At [2], the indicator drops
beneath 30, warning of an expected bottom, and it is right again. At [3], it
is again hinting at expected drops.

Is this the time to short? I can promise you I have no intention of
shorting a stock that is trending up, so why use the oscillator? We use it
as an advanced warning system. If you are currently holding a stock, you
should be concerned, but you do not necessarily need to sell unless other
indicators, such as trend, volume, reversal configurations, and more, are
supporting that decision. In short, the RSI is only an assistive tool. And, it
is only one of many.

The MACD Index

MACD stands for Moving Average Convergence-Divergence. Analysts dub
it the “Mac-Dee.” It serves as both an indicator and oscillator. The MACD
is displayed on the stock chart as two lines moving adjacent to each other

and signaling buys and sells at the points where they cross over each other.

You don’t necessarily need to read what follows, but if you really want to

get tangled in a technical explanation, clench your teeth and read the rest
of this paragraph. The MACD is comprised of two lines. The first is derived
by deducting the exponential moving average for 12 days (12EMA) from
the exponential moving average for 26 days (26EMA). Alongside this line
is the second, which is the exponential moving average for 9 days (9EMA).
When this second line crosses the first, by moving either up or down, the

relevant buy or sell signals are produced. Remember that we discussed the

moving averages that cross each other and indicate trend reversal? The
MACD is a slightly smarter use of these moving averages.