We had some questions yesterday about the Italian Bonds. So here is your educational moment, understanding our missives and how markets work.

When I awoke yesterday, this Bond had fallen off a cliff. Note the RSI reading on the bottom right “it was app 7%!” on the daily when I wrote yesterday.

This shows a massively oversold instrument. ” Everybody is one way”, A market ripe for trapping all directional players. The reverse is true if a market is trading with a 90% RSI.

Markets can go parabolic, but the vast percentage of the time when you see a reading like this, get ready for a big rebound. Simply put, if you’re a short term trader you should look to buy before you sell. Longer time frame traders should just take their money and wait.

Markets rarely stay this directionally overstretched without a pressure release.( Rebound) Shorter Time frame traders can only trade “contra trend” to get rewarded when instruments are this overdone directionally.

Caveat: We only look at the longer time frames; daily,weekly ect. We do not use this tool on short time frame charts.