question archive You want to calculate the 14-day period Relative Strength Index (RSI) for stock A at the end of the 14th day, as represented by the following table: Day Price at the end of the Day 1 $37 2 $40 3 $41 4 $43 5 $40 6 $39 7 $42 8 $46 9 $45 10 $47 11 $52 12 $56 13 $53 14 $52 Calculate the 14 day period RSI for stock A, starting from the end of the 14th day
You want to calculate the 14-day period Relative Strength Index (RSI) for stock A at the end of the 14th day, as represented by the following table: Day Price at the end of the Day 1 $37 2 $40 3 $41 4 $43 5 $40 6 $39 7 $42 8 $46 9 $45 10 $47 11 $52 12 $56 13 $53 14 $52 Calculate the 14 day period RSI for stock A, starting from the end of the 14th day
Subject:FinancePrice:2.86 Bought7
You want to calculate the 14-day period Relative Strength Index (RSI) for stock A at the end of the 14th day, as represented by the following table:
Day Price at the end of the Day
1 $37
2 $40
3 $41
4 $43
5 $40
6 $39
7 $42
8 $46
9 $45
10 $47
11 $52
12 $56
13 $53
14 $52
- Calculate the 14 day period RSI for stock A, starting from the end of the 14th day.
(Hint: Average gain = sum of gains over 14 days/ 14; average loss = sum of losses over 14 days/ 14)
- Is stock A overbought or oversold according to the RSI calculation in part a? What is your recommendation for this stock?
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1) RSI for Stock A = 95.29
Currently, the Stock A is in overbought territory as the same is well above the overbought beginning range of RSI of 70 which is currently at 95.29 which clearly indicates that the same has been overbought due to the sentiments of the shareholders and the potential investors who've flocked the market to grab hold of the shares of Stock A.
My recommendation would be to avoid fresh buying in Stock A as the same is already in overbought territory and hence even the slightest fall in the market would lead to massive selling of the stock leading to the massive fall in the value due to the already overvalued position of the stock. Hence, currently we must wait for fresh buying. In case, we already hold the stock the stock should be immediately sold at the premium at which the Stock A has been trading as the stock is well above its intrinsic value i.e true value of the share.
Note : Relative strength Index is the technical indicator of the performance of the financial markets and other stocks in general. RSI is measured on a scale of 1 to 100 with the low levels of oversold ranging from 30-40 and the high levels i.e the overbought area of 70 and above.
Step-by-step explanation
1) Calculation of the RSI for Stock A
RSI = 100 - [ 100 / ( 1 + (Average gain/ average loss ) ]
RSI of Stock A = 100 - [ 100 / ( 1 + ( ( 15 + 12 + 11 + 9 + 12 + 13 + 9 + 6 + 7 + 5 ) /14) / ( ( 4 + 1)/14
RSI of Stock A = 100 - [ 100 / 1 + ( 7.07 / 0.357 ) ]
RSI of Stock A = 100 - [ 100 / 20.804 ]
RSI of Stock A = 100 - 4.81 = 95.29
